August 15, 2018

UK executives take home record wages, as average employee pay stagnates

UK executives take home record wages, as average employee pay stagnates

Pay for FTSE 100 CEOs rose 11% last year, more than six times the rate of the average UK worker, despite efforts by the British government to curb excessive pay.

The rise in earnings, reported in the High Pay Centre’s annual review, means that Britain’s top executives now have an average annual salary of £3.9m. By contrast the UK’s median salary is just £23,474.

The report comes against a backdrop of rising prices and stagnating wage growth for most workers in the UK, where the average employee’s salary is currently just 1.7% above last year’s figure. This means that wage growth for the average worker was outpaced by inflation in the last 12 months.

The report is likely to trigger a fresh conversation over the issue of unequal pay. Although the British Prime Minister Theresa May pledged to tackle the issue of executive pay when taking office, many of the proposals made by the government have since been watered down or scrapped.

Rachel Reeves, chair of the business committee in the UK’s House of Commons, said the government needed to take tougher measures on pay if action is not taken by company boards and the remuneration committees (which set executive wages). She 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.”

The High Pay Centre’s report found that pay at many companies was pushed up by long-term incentive plans (LTIPs), which made up 56% of executive pay in 2017. Such plans are intended to reward performance over several years, however, shareholders have begun questioning whether LTIPs are a good way of reflecting this. The report said that LTIPs rewarded individual executives when generally rising share prices, economic growth and the efforts of other workers also contributed to a company’s performance.

Among the recommendations made by the High Pay Centre were calls for the government to bring forwards the implementation of new rules on reporting pay gaps. The new legislation, currently slated to come into effect from 2019, requires all public companies with 250+ employees to publish and justify the gap between CEO and average worker salaries.

Discussing the issue of escalating executive pay in IZA World of Labor, Michael L. Bognanno suggests that: “Although empirical evidence of effectiveness is lacking, measures that enhance the transparency of compensation packages, strengthen the shareholder voice on pay issues, and limit the CEO’s freedom to exercise stock options might help move CEO pay toward just levels.”

Read further articles on Pay and incentives