Pay for the UK’s top bosses nudges higher
With trust in business at an all-time low and wage-growth stagnating, Charles Cotton explores the shocking levels of executive pay in Britain’s biggest businesses
With trust in business at an all-time low and wage-growth stagnating, Charles Cotton explores the shocking levels of executive pay in Britain’s biggest businesses
The total income received by chief executives working for FTSE 100 firms in the financial year ending 2017 was £560.1 million, finds a joint study by the CIPD and High Pay Centre.
This amount is 23% higher than what these CEOs received back in 2016, according to research based on study on the 2017 accounts of companies listed in the FTSE 100 in June 2018.
In comparison, data from the Office for National Statistics indicates that mean salaries for all full-time workers in the UK have gone up over this period by 3% to £35,423.
If we were to divide this total income equally among all the CEOs covered by our report, they would each receive a mean annual package worth £5.7 million, while in 2016 their package was worth £4.6 million.
However, CEO pay is not distributed evenly. If we rank the CEO pay in the FTSE 100 from the lowest to the highest, then the mid-point in this range is worth £3.9 million, which is 11% higher than the median figure of £3.5 million paid out in 2016.
By contrast, between 2016 and 2017, median pay for full-time workers increased by 2% to £28,758.
The majority of CEO pay packages come from variable pay. In fact, only 16% of mean total remuneration is represented by base salary, lower than the 20% figure from last year’s analysis.
The largest part of CEO remuneration is made up of awards from Long term Incentive Plans (LTIP). An LTIP is a remuneration arrangement whereby an individual gets rewarded after a number of years, such as five-years, for the achievement of a firm’s long-term goals.
LTIPs represent 56% of total mean pay – and an even bigger slice than last year’s 48%. Including those who received no LTIPs, the mean LTIP pay in 2017 is £3.2 million, significantly higher than the 2016 figure of £2.2 million. The median LTIP pay was £1.2 million, only slightly higher than the 2016 median figure of £1.1 million.
If we only consider those who received LTIPs, the mean LTIP pay in 2017 was £3.8 million compared with £2.6 million in 2016, and the median LTIP pay in 2017 was £1.8 million compared with £1.4 million in 2016.
The continuing use of LTIPs and their growing size (both in absolute and relative terms) might be considered surprising, given the recent interest in alternative pay mechanisms. For example, the Investment Association Executive Remuneration Working Group in 2016 concluded that firms should adopt a more flexible, individualised approach to executive pay, rather than automatically deferring to the prevailing LTIP model.
Similarly, the Government’s 2017 response to the Green Paper on Corporate Governance noted that a large majority of respondents to the consultation question on LTIPs ‘expressed concern that LTIPs are not adequately aligning executive remuneration with long-term company performance’. However, these concerns do not yet appear to have translated into changes in pay practices.
Looking at the data by gender, we find that as a FTSE 100 CEO, you are as likely to be named Dave or David as you are to be female. You are also just as likely to be named Steve or Stephen. By the financial year ending 2017, there were seven Davids in the FTSE 100 CEO list and seven Steves or Stephens. But women have caught up with these levels, increasing steadily over the years from five in 2015 to six in 2016 and to seven in our recent cohort. While women make up 7% of the FTSE 100 CEOs, they only earn 3.5% of the total FTSE reward package.
Across all FTSE 100 companies, 38% of all remuneration committee members are female and the number of females on remuneration committees is steadily rising, with 158 women now on FTSE 100 remuneration committees compared with 148 in the previous year. Only five firms had no women on their remuneration committees in the financial year ending 2017.
By ethnic diversity, only three of the FTSE 100 companies examined has provided a breakdown of their board, while just 13 have given an analysis of the ethnic diversity of their workforce as a whole.
What are the implications of these findings for the HR profession? We believe to help create more inclusive approaches to employee reward, HR should champion a better understanding:
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Charles has recently led research into the business case for pensions, how front line managers make and communicate reward decisions, and managing reward risks, as well as the creation of a good practice guide on the annual pay review process. He is also responsible for the CIPD’s public policy work in the area of reward and is a Chartered Fellow of the CIPD.
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