Pandemic caused pay ratios to fall, but new analysis indicates ratios are now increasing to new highs
- The median CEO/median employee pay ratio across the FTSE 350 was 44:1 in 2020/2021, down from 53:1 in 2019/2020. 2020/21 also saw a decrease in the median CEO/lower quartile employee pay ratio for the FTSE 350, at 59:1 compared to 71:1 the previous year.
- In the FTSE 100, the median CEO/median employee ratio was 67:1 and the median CEO/lower quartile employee ratio was 93:1 (73:1 and 109:1 in 2019/20).
- 28 Companies (14% of the total) had a CEO/median employee pay ratio of over 100:1, compared to 43 in 2020.
- Pay gaps are set to rebound post pandemic, with the 69 companies to have reported in the first quarter of 2022 showing a median pay ratio of 63:1, almost double the 34:1 median ratio at these companies in 2021.
This report, supported by the Abrdn Financial Fairness Trust, shows that cuts to executive pay during the pandemic led to a fall in the median CEO/median employee pay ratio across the FTSE 350 to 44:1 in 2020/21, down from 53:1 in 2019/20. The median gap between CEOs and their lower quarter employees fell to 59:1 from 71:1 in 2019/20.
However, early examinations of more recent disclosures indicate that pay gaps will widen again in 2022.
Across the 69 companies that disclosed pay ratios in Q1 2022, the median CEO/median employee ratio was 63:1. This was nearly double the ratio for the same group of companies in 2021, at 34:1.
The research that pay ratios were widest in the retail industry with an average pay ratio of 117:1. Ratios were lowest in media (29:1) and financial services (30:1).
Other key findings:
- While pay gaps between the CEO and the upper quartile threshold were relatively wide, with a median CEO to upper quartile threshold ratio of 31:1, gaps further down the workforce were far narrower. The median ratio between the upper quartile and lower quartile thresholds (the 75th and 25th percentile points) was slightly under 2:1.
- 27 companies paid workers in the lower quartile of their pay distribution less than the annualised equivalent of the London Living Wage, while 8 paid less than the equivalent of the Real Living Wage. However, complications with how companies accounted for pandemic-related changes to their workforce in the pay ratio calculations makes comparisons difficult.
The report notes that the two main limitations of the pay ratio reporting requirements are
- The lack of information regarding the pay of top earners between the CEO and the upper quartile threshold, meaning it is difficult to assess what the company is spending on very high earners and the potential to raise pay for low and middle income workers by re-balancing.
- The failure to account for indirectly employed worker, meaning that many low paid workers are excluded from the calculation. Using accreditation status from the living wage foundation to estimate the pay of low earners, the High Pay Centre calculates the median CEO to lowest-paid worker ratio to be 111:1.
The report makes recommendations for improvements in reporting, and for wider policy change.
Recommendations for better reporting include:
- Companies should provide more granular information on the earnings of those between the upper quartile threshold and the CEO.
- Outsourced workers should be included in the pay ratio calculations.
- There should be higher standards and clearer expectations of narrative reporting.
- Companies should directly provide information on pay ratios to their workers.
- Companies should provide data on their number of UK employees.
Recommendations for wider policy change include:
- Allow trade union access to workplaces, to inform workers of the benefits of collective bargaining.
- Establish sectoral governance bodies to monitor fair pay
- Legislate for worker representation on company boards.
- Require companies to introduce all-employee profit sharing or share ownership schemes.
- Amend company law to give the interests of all stakeholders equal importance, rather than elevating shareholder interests above those of others.
- Make the shareholder vote on directors’ remuneration reports legally binding.
- Require companies to include guidance on potential future pay ratio sizes in their remuneration policies so that shareholders can vote on this.
- Apply the pay ratio disclosure requirements to all large employers.