The gap between pay packets for bosses of the UK’s top companies and the average worker has widened despite forthcoming pay transparency laws, a CIPD report published today has found.
The research, which was carried out alongside think tank the High Pay Centre, discovered the ratio of median FTSE 100 CEO pay to median UK full-time or part-time worker pay had increased in 2017 to 167:1, up from 153:1 in 2016. However, the median ratio between blue chip bosses and their staff fell to 77:1 from 84:1.
The median gap persisted despite the impending introduction of pay ratio reporting. The proposed laws, which will require listed companies with more than 250 employees to publish and justify the median pay differences between their CEO and their staff, are due to come into force in January 2019. Reporting is expected to start in 2020.
“The publication of pay ratios is hopefully going to encourage a discussion within the organisation about how all employees are rewarded,” said Charles Cotton, the CIPD’s senior adviser for performance and reward.
Cotton recommended organisations which were able to calculated their ratios for previous years to help them put their reporting into context when disclosure became mandatory. “Because these figures are going to appear in the annual accounts and the explanation is going to be there in the annual accounts, that will raise its profile,” he added.
Luke Hildyard, the High Pay Centre’s director, remarked: “It is deeply unsettling that such a substantial pay gap remains between CEOs and ordinary workers. How pay is distributed within organisations has a big effect on living standards.”
The Executive Pay: Review of FTSE 100 executive pay report also found FTSE 100 CEOs’ median pay had risen to £3.93m in 2017, up 11 per cent from £3.53m in 2016. By comparison, yesterday’s Office for National Statistics (ONS) figures revealed total pay for all workers had increased by just 2.4 per cent year-on-year.
Chief executives’ mean average pay had shot up even further, rising 23 per cent from £4.58m in 2016 to £5.66m in 2017. However, this figure was skewed by two large payouts in 2017 – £47.1m for housebuilder Persimmon’s Jeff Fairburn and £42.8m for finance company Melrose Industries’ Simon Peckham.
Cotton said CEO rewards seemed to be rooted in “financial and operational figures”, remarking: “We want to see that shift to how successful they have been at engaging, motivating their workforce.”
A separate CIPD report, published last month, warned FTSE 100 businesses were “painting an overly positive picture” of workforce issues in their annual reports.
Noting it was “disappointing” CEO remuneration had remained high, Peter Cheese, the CIPD’s chief executive, said: “Given the ongoing issues of trust in big businesses and a push for greater transparency, it really is time businesses and boards put greater scrutiny on high pay, and that they think much more objectively about what they are rewarding CEOs and how.”
Rachel Reeves, Labour MP for Leeds West and chair of the business, energy and industrial strategy (BEIS) committee, added: “When CEOs are happily banking ever larger bonuses while average worker pay is squeezed, then something is going very wrong. Recent revolts on pay awards show that shareholders are increasingly sharing this frustration at unjustifiable pay awards.”
The BEIS committee is running an inquiry into corporate governance and delivering on fair pay, which is considering what steps can be taken to combat excessive executive pay.
Meanwhile, a report published by professional services firm Deloitte earlier this week suggested investors were losing patience with sky-high awards, with 14 per cent of FTSE 100 companies receiving less than 80 per cent approval on their remuneration reports during 2018’s annual general meeting season. Only 7 per cent of reports failed to drum up this level of approval during 2017.