The gap between executive pay and the earnings of average employees is expected to widen again this year after shrinking slightly during the Covid crisis, a think tank has said.
The latest analysis of FTSE 350 companies by the High Pay Centre found in 2020/21 the average CEO earned £44 for every £1 earned by the average employee, down from a ratio of 51:1 the previous year, as many firms cut executive pay in the face of Covid.
However, according to early examinations of more recent disclosures, the High Pay Centre said the pay gap was set to rebound in the aftermath of the pandemic.
So far, the 69 companies that have already reported their data for the first quarter of 2022 had a median pay ratio of 63:1, almost twice the 34:1 ratio that the same firms had the year before.
Luke Hildyard, executive director of the High Pay Centre, said the data showed companies and their stakeholders showed sensitivity to the needs of employees during the pandemic as they reduced pay inequalities.
Given the current economic climate, Hildyard pointed out that how resources are shared will become increasingly important. “Major employers have a key role to play balancing their pay awards so that high, middle and low earners are all paid fairly and proportionately,” he said.
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“As the Covid-19 emergency hopefully reduces, it would be a shame if the spirit of solidarity it generated fades away as well,” Hildyard added.
This was echoed by Alan Price, CEO of BrightHR, who said employers needed to remember it was likely many employees were struggling with finances at the moment. He urged firms to start “taking steps to help them out”.
“If you do this, you’re showing you understand their problems, which will give them a massive morale boost and you end up with more motivated and productive staff,” he said.
The High Pay Centre also called for a reform of pay ratio reporting requirements to create more transparency over what top listed companies pay their higher earners below CEO level.
It said the lack of information about the pay of top earners between the CEO and the upper quartile threshold made it harder to assess what companies were spending on very high earners and their potential to raise pay for low- and middle-income workers.
In addition, the failure to account for indirectly employed workers meant that many low-paid workers were left out of the calculation.
Proposing a better way of reporting, the High Pay Centre recommended that companies provide more granular information on earnings and companies directly provide information on pay ratios to their workers.