Today is the day the average FTSE 100 chief executive will have earned as much as a worker on median pay makes in a year. In fact the High Pay Centre calculates it will be around 5:30pm today—just 34 hours into the working year—that CEOs will have banked the average worker’s annual salary.
That’s a small improvement on last year’s 33 hours, a result the think tank describes as “flat”.
The notice comes as the High Pay Centre’s annual reminder that big disparities remain between executives and workers when it comes to pay.
“Pay for top CEOs today is about 120 times that of the typical UK worker. Estimates suggest it was around 50 times at the turn of the millennium or 20 times in the early 1980s,” says a statement issued by the think tank.
“Factors such as the increasing role played by the finance industry in the economy, the outsourcing of low-paid work and the decline of trade union membership have widened the gaps between those at the top and everybody else over recent decades.”
Increasing pressure on pay
While the differences are no doubt big, driven by a long-term trend of rising CEO pay, there is also some evidence that change is happening in the market.
According to Sandy Pepper, a professor and executive pay expert at the London School of Economics, between 2000 and 2015 average UK wages rose by an annualised rate of around 3% a year, while the figure for median FTSE 100 CEO pay was around 10%.
“Since 2016 the rate of increase of FTSE 100 CEO pay has slowed significantly, while average wages have continued to rise at around 3%. Hence the outcomes identified by the High Pay Centre,” he says.
There are a couple of reasons Pepper suggests why rising executive pay may have been stymied. CEO pay is associated with stock performance which the Covid crisis has affected. But companies may also be listening to those leaning on their boards about pay.
“More generally,” says Pepper, “there is some evidence that companies are taking notice of increasing pressure on executive pay which is being applied by institutional investors like BlackRock and the Norwegian sovereign wealth fund.”
Pay ratio disparities
Last year researchers from the High Pay Centre looked at disclosures from 201 companies on pay ratios, and found that median FTSE 100 ratio for chief executive to the lowest paid, or lower quartile, workers in 2019–20 is 109:1. For the FTSE 350 the figure is 71:1.
The study also identified the companies with the biggest pay disparities. Ocado, an outlier, revealed a ratio of 2,605:1 for the CEO to median employee. Other companies revealed big numbers too. JD Sports’ ratio is 310:1 and Tesco 305:1. AstraZeneca, currently involved in Covid vaccine production, has a ratio of 190:1.
Retail emerged as the sector with the biggest pay difference with a ratio of 140:1, while financial services, largely due to lower numbers of highly paid workers, had a ratio of 35:1.
The High Pay Centre made a number of recommendations, many of which would represent significant changes to current corporate governance. It suggested government turn to legislation to mandate a staff member sitting alongside executives and non-executives on boards.
“This would allow workers to play a meaningful part in the governance process and would provide a voice at the highest level of the company making the argument for more even pay distribution,” it says.
Proposals for improved reporting include statements about the use of pay data by boards. The High Pay Centre found few companies offered detailed narratives about what would happen now they had information to hand.