Research from the CIPD has found that CEO median pay rose by 11 per cent between 2016 and 2017, despite prominent criticism from the investor community and the government over excessive CEO pay awards in the past year.
The annual assessment of FTSE 100 CEO pay packages comes from the CIPD and the High Pay Centre, the independent think tank for pay and governance, and says that FTSE 100 CEO median pay now stands at £3.93 million per year, an increase on £3.53 million in 2016. This year’s analysis is affected by two very large payouts for the CEOs at Persimmon and Melrose Industries (£47.1 million and £42.8 million respectively). As a result of this, this year’s CIPD/High Pay Centre report leads with the median, rather than the mean figure. Using the median measure of CEO remuneration reduces the impact of these two outliers, but it still shows an increase in earnings of 11 per cent, compared to the two per cent rise in median pay enjoyed by full-time workers over this period.
However, if the mean measure is used, then it shows that CEO mean pay across all FTSE 100 companies has increased by 23 per cent over the same period, from £4.58 million in 2016 to £5.66 million in 2017. Excluding Persimmon and Melrose Industries from the analysis would see the 2017 mean CEO single figure fall from £5.66 million to £4.85 million. However, this is still higher than last year’s overall mean figure of £4.58 million by six per cent, showing an underlying trend of rising executive pay.
Further highlights from this year’s CIPD and High Pay Centre analysis include:
• The highest paid CEO in the financial year ending 2017 is Jeff Fairburn of Persimmon plc who has received £47.1 million, 22 times his 2016 pay. Simon Peckham of Melrose Industries plc received £42.8 million, 43 times his 2016 pay.
• The mean pay ratio between FTSE 100 CEOs and the mean pay package of their employees is 145:1, which is higher than last year (128:1 in 2016, 146:1 in 2015).
• As a FTSE 100 CEO, you are as likely to be named David or Dave, or Stephen or Steve, as you are to be a female CEO. Just seven FTSE 100 CEOs are women, an increase from six in 2016 and five in 2015. At the current rate of one new female CEO each year it will take another 43 years for women to make up 50 per cent of the FTSE 100 CEOs.
• While women make up 7 per cent of FTSE 100 CEOs, they earn just 3.5 per cent of total pay.
• Only 34 companies in the FTSE 100 are accredited by the Living Wage Foundation for paying the living wage to all their UK-based staff.
“Despite increased investor activism and the planned introduction of pay ratio reporting, the evidence suggests that very little is changing when it comes to top pay in the UK,” said Peter Cheese, chief executive of the CIPD. “It’s disappointing to see that CEO pay has held up in the face of increasing pressure when average pay across the workforce which has barely shifted in recent years. However, pressure is building in the system.
“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,” he continued. “Financial performance alone does not signify CEO success, and must be balanced with development of the organisations long-term sustainability and value. Investors and boards need to look beyond share price, and consider a much broader range of indicators that show how that individual is performing for the long-term good of the business, its workforce and other stakeholders.”
Rachel Reeves MP, and chair of the Business, Energy and Industrial Strategy Committee, which is managing an enquiry on ‘Corporate Governance – Delivering on fair pay’, said: “Excessive executive pay undermines public trust in business. 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. Executive pay must match performance. Boards and Remuneration Committee Chairs need to ensure that CEOs are rewarded for delivering genuine long-term value for the company. If Boards and Remuneration Committee chairs are so out of touch they are prepared to waive through off-the-scale reward packages, then shareholders must strike back and hold them to account. If businesses don't step up on executive pay, then Government will need to step in”.
Luke Hildyard, director of the High Pay Centre, said: “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, and by many measures the UK is one of the most unequal countries in Europe. Big CEO pay increases reflect poorly on corporate culture and accountability and suggest that bolder reforms to corporate governance may be needed. In this light, the weakening of plans to give workers representation on company boards could be misguided.”