Dr Tim King from KBS comments on the issue of CEO pay continuing to outgrow that of an average worker after MPs call for wages between executives and workers to be linked.
‘Executive remuneration continues to be an important yet highly controversial topic. One important source of controversy relates to gaps between CEO and average worker pay. This pay gap has been widening. In 2018, median UK worker pay was £23,474. By contrast, a typical FTSE 100 CEO received £3.9 million. In 2017 the gap in pay was 167:1, up from 153:1 in 2016. This trend has been persistent. In fact, and as recently reported by The Business, Innovation and Skills Parliamentary Select Committee, pay of FTSE 100 CEOs has increased by over four times relative to average worker pay over the past decade.
‘What should we make of this? Increasingly stakeholders signalling their discontent over high levels of paid afforded to top executives. In 2018, 63 firms faced actions by activist shareholders over proposed executive pay packages. Much publicised cases include the £75 million bonus awarded to Jeff Fairnburn, then CEO of the house builder Persimmon Homes. This bonus figure alone is an eye-watering 4,100 times that of a worker paid at the UK’s Real Living Wage. Widespread anger and condemnation from the general public, government and other stakeholders over the level of pay as well as question marks over whether it constituted pay-for-performance, led to his dismissal.
‘This growing stakeholder discontent at certain FTSE 100 firms and the alarming widening gap of executive to average worker pay is beginning to have some positive impact. Recent changes in legislation in the UK and overseas are forcing public and private firms to be more transparent over pay levels and structures, and are giving stakeholders increasing voice to signal discontent, such as mandatory votes on executive pay, and efforts to remove glass-ceilings. These changes cannot have come soon enough. While they are undoubtedly positive it will still take some considerable time before they have enough of a significant impact to change executive pay practices.’
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