Five years of pay ratio disclosures show little change in CEO to worker pay gaps
Our latest analysis of pay ratios disclosures in the FTSE 350, funded by the abrdn Financial Fairness Trust, examining five years of mandatory ‘pay ratio’ disclosures, shows that CEO to worker pay gaps remained stable from 2019-2024 with a brief narrowing of the gap during the Covid-19 pandemic.
The median ratio of the CEO pay to that of the median full-time UK employee was 52:1 across FTSE 35O companies in 2023/24, down from 54:1 in 2022/23. The median pay ratio of FTSE 350 CEOs to lower earning colleagues at the 25th percentile (or lower quartile threshold) of the UK employee population was 71:1 in 2023/24, down from 75:1 in 2022/23.
Historic pay ratios – CEO pay as a multiple of UK employee pay (full-time equivalent basis)
These ratios are higher for the FTSE 100, where the median CEO/median employee ratio was 78:1, and the median CEO/lower quartile employee ratio was 106:1 (80:1 and 119:1 in 2022/23). 18% of FTSE 350 companies had a CEO to median employee ratio of over 100:1 while at 5% it was over 200:1. The pay ratio between the CEO and the 25th percentile was over 100:1 at 28% of companies and over 200:1 at 9%.
Average pay for workers at the 25th percentile across the ten companies with the lowest lower quartile thresholds has increased by £2,094 since last year, an increase of 11.46%. This suggests that there has been some progress toward raising pay levels for lower earning workers (at least for those classed as direct employees and therefore included in the pay ratio figures). However, the changes could also reflect changes to the employee population used to make the calculation – if the size of the workforce has been reduced or jobs outsourced or relocated this might significantly change pay at the 25th percentile of the UK employee population without workers experiencing a significant change in their pay levels. The report notes that poor quality reporting by companies make the causes of changes in employee pay hard to assess.
Lowest pay for low-earning employees in 2023/24
The report argues that while the pay ratio disclosures have major limitations and imperfections that ought to be addressed, they have filled a gap in corporate reporting. Even though annual reports are typically now over 200 pages long and remuneration reports average 29 pages in length, the pay ratios are the only reporting requirements that provide investors, workers and other stakeholders with consistent, comparable data on pay levels of workers outside the boardroom.
The report recommends that:
- Companies should provide more detailed information on how many jobs they provide at different pay levels
- Outsourced workers, who often carry out very low-paid work, should be included in the pay ratio calculations
- Companies should be required to communicate information on CEO-to-worker pay gaps directly to their workforce, as well as publishing the figures in their annual report.
The report also discusses the hypothetical potential of a ‘maximum wage’ expressed as a pay ratio to raise incomes by re-balancing distribution. We note the UK’s high, by international and historic standards, levels of inequality and concentration of incomes and note that a maximum ratio could prove a more empowering and politically popular way to reduce inequality rather than relying solely on taxes and transfers.
If the CEO pay at 112 FTSE 350 companies that are not currently Living Wage Foundation accredited was capped at ten times the pay of their median UK employee, this would create savings of £267m across the companies, equivalent to the cost of raising the pay of nearly 87,000 workers paid the national living wage in 2023/24 to the real living wage. Even after this redistribution, average CEO pay across the companies would have remained close to half a million pounds.
Widest CEO to median employee pay ratios, 2023/24
Widest CEO to employee pay ratios, 2023/24 (employees=UK employee at 25th percentile of the pay distribution on a full-time-equivalent basis)
Time for a maximum wage?
Over the past five years, pay ratio disclosures have given workers, investors and other stakeholders a much better insight into how companies distribute pay, one of their biggest items of expenditure.
There has been a lot of interest in the role that wealth taxes on those at the top and other forms of redistribution could play in reducing the UK’s very high levels of income inequality, but it’s also important to stop these inequalities from emerging in the first place. Our research suggests that a maximum CEO to worker pay ratio could help ensure that all workers get a fair reward for their contribution to business success. It is time for policymakers to consider the idea seriously.