Re-thinking reward: interim High Pay Centre analysis of new pay ratio reports

By 28.06.20PublicationsApril 20th, 2021No Comments

Our analysis of the first ‘pay ratio’ reports finds some limitations to the disclosures, but also identifies the potential to raise pay for low earners through redistribution from those at the top

Our new paper, funded by the Standard Life Foundation, has found that rethinking pay within top companies could be used as a way to give a post pandemic pay rise to the lowest paid workers including millions of key workers.

The research is based on new pay ratio disclosures in companies’ annual reports, requiring them to report their CEO’s pay relative to the top quarter, median and lower quarter pay of their employees. We analysed annual reports published by the first 107 companies to comply with the new requirements in the first four months of this year. We calculated that reducing pay of employees at the upper quartile by 3% could fund a median pay rise of £2,000 for the lowest earning quartile of employees in the same companies.

The report notes that the potential for rethinking pay is likely to be much higher, because the disclosures show minimum pay levels for the upper quartile earners, and maximum pay for the lower quarter. The need for such changes to pay is highlighted by figures showing the vast pay gaps between high and low earners at FTSE 350 companies. This includes 39 companies who are currently receiving state support through the furlough scheme and/or the Covid Corporate Financing Facility.

The research also found that:

  • The FTSE 100 median CEO/median employee ratio is 74: 1 and the median CEO/lower quartile employee is 109: 1. For the FTSE 350 median CEO/median employee ratio is 55:1 and the median CEO/lower quartile employee is 78: 1.
  • For the 11 FTSE 100 companies receiving state support via the furlough scheme or the Covid Corporate Financing Facility the median CEO/median worker ratio is 80: 1 and the median CEO/lower quartile ratio is 109: 1. For the 39 FTSE 350 companies the median CEO/medianworker ratio is 60: 1 and the median CEO/lower quartile ratio is 78: 1.
  • The healthcare industry has the highest average CEO/median worker ratio (129: 1) followed by consumer services (92: 1) and consumer goods (73: 1).

The real pay ratios were likely to be wider than those reported, becauseoutsourced workers in low paid jobs are not included in the calculations. To compensate for this problem we calculated an additional CEO to low
paid worker ratio by comparing CEO pay to an annualised equivalent of the national minimum wage, or the real living wage for companies that are accredited living wage employers.The median CEO to low-paid worker ratio is 133:1 for the FTSE 350 and 253:1 for the FTSE 100.

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