Mythbuster: Are huge executive pay packages really vital to UK competitiveness?
As part of the New Economics Foundation's 'mythbuster' series, Luke Hildyard debunks the myths used to justify excessive executive pay
We’re encouraged to believe that company executives are talented wealth creators, worthy of extreme pay packages which supposedly drive them to work hard to the benefit of society.
As part of the New Economics Foundation's mythbuster series, Luke Hildyard analyses the arguments put forward to justify the shocking growth in executive pay packages over the past thirty years, finding that there is little evidence to support them:
- the risk of executives moving overseas is greatly exaggerated - less than 1% of the world's biggest companies have lured the CEO of an overseas rival with an increased pay package
- there is little evidence to support the idea that there is a finite pool of irreplaceable company leaders - internally-promoted executives, nurtured by strong personal development programmes, tend to perform better than supposed superstars recruited from external competitors
- For all the talk of 'performance related pay' the rapid growth in executive pay packages - driven by huge increases in bonuses and incentive plans - has brought about little improvement in company performance
The fact that these myths have been allowed to take hold has greatly exacerbated levels of socially-divisive inequality in the UK, while the increased share of the national income captured by the richest 0.1% diverts wealth from low and middle-income households.
Since 1 January 2020 the average FTSE 100 CEO has earned:
Income inequality in the UK
Wealth inequality in the UK
- High Pay Day 2020: Scope for fairer pay and lower inequality remains considerable
Pay for the typical FTSE 100 CEO in 2020 has already surpassed the amount the average UK worker earns in an entire year. We can do much more to achieve a better balance between those at the top and everybody else
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- High Pay Centre briefing: regional economies across the EU
The UK's poorest regions are falling behind the rest of Europe