FTSE 100 CEOs earn average £900 an hour

Heads of the UK’s biggest companies only need to work until the end of today in order to make the same amount of money that the typical full-time employee will in the entire year

Bosses earn 117 times more than their employees and to match average worker pay in 2020, FTSE 100 CEOs only need to work until just before 17.00 on Monday 6 January – just three working days (33 hours) into the new year, research by High Pay Centre and the Chartered Institute of Personnel and Development (CIPD) shows.

High pay is set to be a key issue in 2020 as this is the first year that publicly listed firms with more than 250 UK employees must disclose the ratio between CEO pay and the pay of their average worker, along with a supporting narrative to explain the reasons for their executive pay ratios.

The first round of reporting will be seen in annual reports published in 2020.

High Pay Centre figures suggest that compared with last year, FTSE 100 CEOs now have to work slightly longer to make the median UK salary, after their pay fell from £3.9m to an average of £3.46m.

However, this simply means it now takes them until teatime, rather than lunchtime, on the third working day of the year, at a pay rate equivalent to £901.30 an hour.

In comparison, the average (as defined by the median) full-time worker took home an annual salary of £29,559 in 2018, equivalent to £14.37 an hour.

Luke Hildyard, High Pay Centre director, said: ‘How major employers distribute pay across different levels of the organisation plays an important role in determining living standards.

‘CEOs are paid extraordinarily highly compared to the wider workforce, helping to make the UK one of the most unequal countries in Europe.

‘New reporting requirements mean that publicly listed firms will have to be more transparent over how and why they reward their CEOs relative to the wider workforce. Hopefully this will lead to a more sensible balance between those at the top and everyone else.’

Peter Cheese, chief executive at the CIPD, said: ‘This is the first year where businesses are really being held to account on executive pay. Pay ratio reporting will rightly increase scrutiny on pay and reward practices, but reporting the numbers is just the start.

‘We need businesses to step up and justify very high levels of pay for top executives, particularly in relation to how the rest of the workforce is being rewarded.’

The imbalance in pay is a growing problem, which employers need to take into account when reviewing overall remuneration packages across the workforce.

‘Employers should handle the issue of fair pay distribution carefully,’ said Paul Holcroft, associate director at Croner. ‘Employees who do not feel like they are adequately paid are all the more likely to be become demotivated, disillusioned and, ultimately, consider leaving their job for alternative employment. This could lead to ongoing issues between management and their staff, particularly if director salaries continue to go up while employee wages remain stagnant.

‘Provided they comply with the latest minimum wage rates, which are set to increase in April, employers are generally free to pay their staff how they please. Despite this, continued scrutiny continues to be placed on employee remuneration particularly with the introduction of CEO pay ratio reporting this year.

‘Business owners should always consider how displaying a significant pay disparity in this regard could result in a poor external reputation for the company overall, potentially deterring both potential future candidates and clients from coming to the business.’

High Pay Centre and CIPD are urging companies to avoid treating the new pay reporting requirements as a ‘box ticking’ compliance exercise, while emphasising the importance of complying fully with their wider reporting obligations under the UK Corporate Governance Code.

Under the Code, companies have to provide information on why executive director remuneration is appropriate relative to their organisation’s strategy and the long-term performance; benchmarking rates against internal and external measures including pay ratios and pay gaps across the company’s workforce; and what engagement has taken place with employees to explain how executive remuneration aligns with the pay of the wider workforce.

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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