Analysis of FTSE 100 CEO pay packages shows that rewards at the top have dropped by almost a fifth, but the slow-down isn’t enough to close the gap between the average employee and executives.
The annual assessment carried out by the CIPD and the High Pay Centre shows that the average FTSE 100 CEO now receives an annual pay package of £4.5 million including basic pay, bonuses and benefits. This is a 17% drop from £5.4 million in 2015 – a significant drop, but it would still take the average full-time worker on the median salary of £28,000 160 years to earn what a CEO is paid in just one year, according to the findings. Sir Martin Sorrell, CEO of WPP earned £48.1 million last year alone, meaning it would take employees 1,718 years to earn the same.
Other key findings include:
- In 2016, the pay ratio between FTSE 100 CEOs and the average worker was 129:1, meaning for every £1 an employee is paid, their CEO receives £129; this is a decrease on 2015, when the ratio was 148:1.
- 60 of the CEOs included in the analysis earn more than 100 times the typical annual salary of a UK worker.
- In stark contrast to the abundant packages awarded to high-level executives, just over a quarter of those analysed are accredited by the Living Wage Foundation as paying the voluntary living wage to UK-based staff.
- Only six FTSE 100 CEOs are female, and while they make up 6% of the top earners, they only account for 4% of the total pay. Male CEOs earned an average £4.7 million in 2016, compared to £2.6 million for women.
Peter Cheese, Chief Executive of the CIPD said: “We have to hope that the reversal in rising executive pay is the beginning of a re-think on how CEOs are rewarded, rather than a short-term reaction to political pressure. The fall in executive pay is a step in the right direction, but it’s still happening within an overall reward system where average wages in the UK have been flat. Our analysis also shows a clear gender pay disparity at the top, with female CEOs receiving less than their male peers. Quite rightly this issue of fairness is increasingly being called out and this needs to be addressed at all levels of businesses.
“Rather than focusing predominantly on share price or short-term profit, we need a much more balanced scorecard for performance that also takes account of other indicators of success such as investment in people, social responsibility and accountability, and long-term value creation. High pay must be addressed as part of the much broader review of UK corporate governance.”
Stefan Stern, Director of the High Pay Centre said: “We have finally seen a fall in executive pay this year, in the context of political pressure and in the spotlight of hostile public opinion. This is welcome, but the response has been limited and very late. It is also, so far, a one-off. We need to see continued efforts to restrain and reverse excess at the top. And we should beware the ratcheting up of pay lower down the FTSE league table as CEOs and remuneration committees ‘chase the median’. This helps nobody but a few lucky top execs.”
Business Minister Margot James said: “It remains this government’s firm commitment to build an economy that works for everyone, making Britain one of the best places in the world to work, invest and do business. We have been very clear that to achieve this ambition businesses should be run responsibly, including ensuring executive pay is properly aligned to performance as outlined in the Corporate Governance Reform green paper. This report shows encouraging signs that the UK’s largest firms are already making progress in this area and our responsible business reforms, which we will publish shortly, will help to enhance the public’s trust and confidence in big business.”
Ann Francke, Chief Executive of the Chartered Management Institute commented: “High-profile cases of runaway executive pay and ‘rewards for failure’ have fuelled a breakdown of trust in business that needs to be rebuilt. As the report highlights, we need to introduce a fairer ratio between executive and average pay. We also need transparent reporting and stronger remuneration committees to make sure executive pay packages are based on long-term evaluation of performance.”