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CIPD - Total FTSE 100 Chief Executive pay has fallen by 13%
CEO pay falls but it would still take 117 years for a worker to earn a CEO’s annual salary, fuelling questions over fairness, performance and governance
An annual assessment of FTSE 100 pay packages, released today, shows that median pay for chief executives fell by 13% between 2017 and 2018. However, the average (median) CEO salary of £3.46 million a year is still more than 117 times that of the average (median) UK full-time worker earning £29,574. In addition, 1,394 'key management personnel’ across the FTSE 100 are paid an average (mean) of £1.5 million each. This highlights the disparity between top earners and the wider workforce and the need for greater scrutiny of executive pay in Britain’s biggest businesses.
These are the findings from the annual analysis of executive pay from the CIPD, the professional body for HR and people development, and the High Pay Centre think tank.
• FTSE 100 CEO median pay has fallen by 13% from £3.97 million in 2017 to £3.46 million in 2018. Despite the fall, their pay is still 117 times that of the average (median) UK full-time worker earning £29,574 and it would take the average (median) FTSE 100 chief executive just three days to earn this amount.
• The fall in pay is likely to be due to a combination of factors including:
- The possibility of greater restraint on high pay, which is to be welcomed.
- Less money being awarded through LTIPs due to variable corporate performance and the cyclical nature of pay-outs, which sees a temporary spike in CEO reward every few years. Such ‘vesting’ cycles contributed to a fall in CEO pay in 2016 followed by a big increase again in 2017.
• 43 CEOs in the FTSE 100 saw their pay increase between 2017 and 2018.
• Complex LTIPs continue to form the biggest component of executive pay, despite criticism from a number of stakeholders, and were awarded to 84% of CEOs. Pensions also make up a significant amount of executive reward. As a percentage of base salary, CEOs get a pension contribution (or payment in lieu of) worth 25%. By contrast, employees get a contribution worth 8% of their wages.
• In total, £465.4 million was paid out to FTSE 100 chief executives in the financial year ending 2018. If we divide this equally across the FTSE 100 companies covered in the report it gives a mean annual pay package of £4.7 million, a drop of 16% from last year.
• The CIPD/High Pay Centre calculate that the mean pay ratio between FTSE 100 CEOs and the mean package of their employees is 114:1. This is lower than last year (144:1 in 2017, 130:1 in 2016).
• 64% of workers agree that CEO pay is too high in the UK, with just 4% disagreeing that this is the case.
More work to be done on gender diversity
Despite efforts to improve boardroom diversity, a FTSE 100 CEO is still more likely to be named Stephen or Steve than be a woman (and just as likely to be called David or Dave). In 2018 there were just six female CEOs in the FTSE 100, a fall from seven in 2017. While women make up 6% of the FTSE 100 CEOs, they earn just 4.2% of the total pay. However, this is a slight improvement on last year when the seven female CEOs earnt just 3.5% of total pay.
FTSE 250 shows smaller swings in CEO pay
For the first time, the CIPD/High Pay Centre extended its analysis to consider the FTSE 250, the 250 organisations listed after the FTSE 100 on the London Stock Exchange. It shows that, in contrast to swings seen across FTSE 100 pay in the last three years, median FTSE 250 CEO pay has remained relatively steady. It was £1.58 million for FYE 2016, rose by 2% to £1.61 million the next year, and dropped back down to £1.58 million in 2018.
Big variations in how senior management in the FTSE 100 are rewarded and how this is reported
This year’s analysis also looked at the pay for ‘key management personnel’ for the first time. This typically includes the chief executive as well as non-executive and executive board members and senior managers. However, there was significant variation in reporting with different companies’ disclosures covering between two and 32 individuals. More than £2.08 billion was spent on FTSE 100 key management personnel remuneration in 2018, dwarfing the £465.4 million paid out to FTSE 100 chief executives.
Per company, the mean total spend on this layer is £21.04 million, working out at around at £1.56 million per person (or £1.09 million as a median). However, mean pay of individual staff in this layer ranges significantly across companies, from £187,000 to £18.19 million, with some individuals earning more than their chief executive.
Shareholder dissent having little impact on pay
Companies are required to put their future remuneration policy to a binding shareholder vote at their AGM at least once every three years. High Pay Centre analysis has shown that between 2014 and 2018 every single FTSE 100 company pay policy put to an annual meeting was approved by shareholders. Most remuneration packages were voted through with levels of support upwards of 90% and no remuneration reports were defeated in 2019. Only six pay packages were defeated between 2014 and 2018. This suggests that shareholder ‘say on pay’ is having little effect on restraining top pay.
Peter Cheese, chief executive of the CIPD, the professional body for HR and people development, said:
“Fairness is one of the biggest challenges facing society today. The gulf between the pay at the top and the bottom ends of companies is slightly smaller this year but it’s still unacceptably wide and undermines public trust in business. We must question if CEOs are overly focused on financial measures and are being incentivised to keep share prices high rather than focusing on the long-term health of their business. Being a custodian for the business and its people over the longer term must surely be a chief executive’s ultimate duty, rather than simply focusing on short-term gain.
“We need to challenge excessive pay, especially when too often it doesn’t match up to company performance. Boards, and remuneration committees in particular need to review how they reward their top executives. They need to ask if it is fair when set against the overall reward strategy and practices of the organisation and if it is warranted in terms of performance. After all, success is the collective endeavour of the many, not just the few at the top. And that point has never been more important in these times of significant uncertainty.”
Luke Hildyard, director of the High Pay Centre, said:
“At a time when we’re struggling to generate economic growth, how pay is distributed between those at the top and everybody else becomes increasingly important. A slight fall in the pay of FTSE 100 CEOs is welcome and reflects improvements to the governance of the UK’s biggest companies, and a growing recognition of the need to address the rampant economic inequality in the UK.
“At the same time, CEO pay awards and the share of total incomes going to the very richest in society remain very high compared to the level of 20 years ago. There is still more to be done to align pay practices with the interests of wider society and give the public confidence that our biggest businesses are working for the good of the economy as a whole rather than the enrichment of a few people at the top.”
In response to ongoing high pay, the CIPD and the High Pay Centre make the following recommendations:
1. Single figure reporting requirements and guidance should be extended to cover key management personnel and pay for the top 1% of earners should be disclosed, to further improve transparency and ensure this area of reporting practice improves.
2. Broaden the remit of remuneration committees to consider wider workforce reward practices, and understanding of organisational culture, fairness and investment in people.
3. Link CEO pay to both financial and non-financial measures of performance to encourage longer term investment in the business in critical areas such as developing the workforce and organisational culture, in research and development, and in corporate social responsibility.
4. Simplify CEO reward packages and ensure they are linked to fewer and more meaningful measures of performance. This would make it easier to understand how CEOs are being rewarded and make CEO remuneration reporting more accessible to investors, employees and other key stakeholders.
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