Brits on an average salary of £28,000 would need to slog away for 160 years to earn the same as a FTSE 100 boss pockets each year, research released today has found.
The report, Executive Pay: review of FTSE 100 executive pay packages, from the High Pay Centre and CIPD, also revealed a 17 per cent drop in average FTSE 100 CEO pay since the 2015 financial year, from £5.4m to £4.5m. But much of this fall can be attributed to WPP’s group chief executive Sir Martin Sorrell’s pay packet dropping from £70.4m to £48.1m. If the advertising tycoon was excluded from the analysis, the average CEO pay drop would be just 15 per cent.
The pay ratio between FTSE 100 chief executives and their workers was 129:1 in the 2016 financial year, meaning a company’s average employee would need to work 129 years to take home the same salary as their boss. Three out of five (60 per cent) FTSE 100 chief execs are paid more than 100 times the annual pay of their workers.
Peter Cheese, chief executive of the CIPD, said the fall in executive pay was a step in the right direction, but warned it was happening “within an overall reward system where average UK wages have been flat”.
Charles Cotton, performance and reward adviser at the CIPD, added: “HR should always be questioning what their organisation is rewarding, why and how, to ensure value for money. The issue is that reward, especially executive reward, is too often seen as a technical discipline, which is removed from the rest of people management and development.”
Stefan Stern, director of the High Pay Centre, told People Management the issue of excessive pay presented HR with both a challenge and an opportunity. “There should be a loud and forceful HR voice in the top pay debate,” he said. “We have got to get this conversation embedded into business at all levels, and HR has a vital role to play because there are clear demotivating effects with excessive pay gaps.”
A number of household names have faced pushback from investors over executive pay this year. One-in-three of fashion brand Burberry’s shareholders voted against its executive pay deal last month, which included a rise in former joint chief creative director and chief executive Christopher Bailey’s pay from £1.9m to £3.5m.
Meanwhile, six out of 10 Pearson shareholders voted against chief executive John Fallon’s £1.5m pay packet in May after the publisher reported its largest-ever annual loss. He received a 20 per cent pay rise last year, including a bonus of £343,000.
And pharmaceutical group AstraZeneca faced a similar revolt in April when over two-fifths of shareholders opposed the £13m package for its chief executive, Pascal Soriot.
Other companies have climbed down over executive pay before facing their shareholders at their annual general meetings. Retailer Next reduced chief executive Lord Wolfson’s pay by 55 per cent from £4.3m to £1.8m following a "challenging" year, while tobacco company Imperial Brands scrapped plans in January which could have increased chief executive Alison Cooper’s pay by up to £3m after shareholders indicated they would shoot it down. BP also slashed chief executive Bob Dudley’s pay packet by 40 per cent to avoid a repeat of the shareholder standoff it experienced last year, in which 59.29 per cent of investors voted against his pay.
Ann Francke, chief executive of the Chartered Management Institute, said: “High-profile cases of runaway executive pay and ‘rewards for failure’ have fuelled a breakdown of trust in business that needs to be rebuilt. We need to introduce a fairer ratio between executive and average pay, and we need transparent reporting and stronger remuneration committees to make sure executive pay packages are based on long-term evaluation of performance.”