Today, just three working days into 2018, the typical FTSE100 chief executive has already banked what it will take the average UK employee the rest of the year to earn, according to calculations by the High Pay Centre and the CIPD
The independent think tank says the figures show that pay for top executives will pass the median UK gross annual salary of £28,758 for full-time employees on 4 January 2018, which it dubs ‘Fat Cat Thursday’.
The calculations come in a year which saw the mean FTSE 100 CEO pay packet fall by a fifth, down from £5.4m to £4.5m. FTSE 100 CEO median pay also fell to £3.45m in 2016 (down from £3.97m in 2015). However, despite this year-on-year reduction in total pay among FTSE 100 bosses, the ratio of CEO pay to the pay of the average full-time worker stands at 120:1.
Stefan Stern, director of the High Pay Centre, said: ‘While it was encouraging to see a tiny amount of restraint on pay at the top of some FTSE 100 companies last year, there are still grossly excessive and unjustifiable gaps between the top and the rest of the workforce. Publishing pay ratios will force boards to acknowledge these gaps.’
Recent government reforms have seen new requirements in the pipeline for around 900 listed companies to annually publish and justify the pay ratio between chief executives and their average worker.
The reforms also include the introduction of the world’s first public register of listed companies where more than a fifth of investors have objected to executive annual pay packages. The first public register was published by the Investment Association in December 2017 and includes more than a fifth of the FTSE 100. Companies on the register include fashion label Burberry, retailers Sports Direct and Morrisons, broadcaster Sky and the advertising company WPP.
Peter Cheese, chief executive of the CIPD, said: ‘To ensure this year’s fall in CEO remuneration isn’t just a blip on the consistently upward trend of recent years, it’s crucial that the government keeps high pay and corporate governance reform high on its agenda.
‘We need a significant re-think on how and why we reward CEOs, taking into account a much more balanced scorecard of success beyond financial outcomes, looking more widely at the impacts of businesses on all stakeholders from employees to society more broadly.’
Cheese said the Financial Reporting Council’s current review of the UK corporate governance code should look to broaden board focus and the remit of remuneration committees to ensure there is much more understanding of the wider workforce and corporate cultures, and in particular how to engage employee voice and improve fairness and transparency.
Luke Hildyard, stewardship and corporate governance policy lead at the Pensions and Lifetime Savings Association, said: ‘Huge pay differences between executives and the wider workforce symbolise how too many companies fail to understand or appreciate the value of their workers.
‘Pension scheme investors use information about the employment models and working practices of the companies they invest in, including the pay gap between the top executives and the rest of the workforce, as indicators of the corporate culture.
‘While companies spend a lot of time devising complicated and very generous pay awards, our Hidden Talent research found that only 7% of FTSE 100 annual reports detail the ratio between the CEO’s pay and the wider workforce; only 21% provide evidence of how much they are investing in training and staff development; and just % show how much they rely on agency workers or other types of insecure employment.
‘As long-term investors, pension funds think that boards should be more sceptical about the need for vast executive pay awards and focus on explaining how they are fostering innovation, improving productivity and developing a positive employment culture throughout their organisations.’
The ‘Fat Cat Thursday’ calculation is based on the assumption that FTSE 100 CEOs work 12 hours a day, including three out of every four weekends, and take only 19 days holiday per year – i.e. 320 days of work a year, or 3,840 hours.
The median pay for a FTSE 100 CEO in 2016 was £3.45m, based on the publicly disclosed ‘single figure’ measure, while median earnings for full-time workers in the UK were £28,758 in 2017. This works out at pay of £898 per hour, meaning that it would take around 32 hours’ work to reach the UK median earnings figure of £28,758.
Details of Fat Cat Day calculations are here.
Report by Pat Sweet
