HPC Executive Director Luke Hildyard’s contribution to a report on remuneration in the financial services sector in 2024 from HR experts Middlemore
Executive pay is a topic that invokes strong opinions. For the members of the UK’s Capital Markets Task Force drawn from the City of London and big business, the approach to top pay in this country is too miserly. If British CEOs were paid more than the £4m a year typical for the lead executive at a FTSE 100 company, and closer to the $15.5m awarded for the top job at a S&P 500 company, we’d be able to attract more businesses to Britain, confident in the knowledge that they could lure the genius CEOs who will make their businesses more successful.
For the wider public, £4m seems quite a lot of money. It’s well over 100 times the average UK worker. Polling by the High Pay Centre suggests that the overwhelming majority of people think that CEOs should be paid no more than 20 times their typical employee. Many expert commentators are similarly concerned. A letter from academics specialising in executive pay, corporate governance and economic inequality raised a series of concerns about the Task Force’s campaigns, covering;
- The limited evidence, beyond the anecdotal, of UK companies failing to attract or retain key executives because of low pay levels
- The questionable link between higher executive pay and better business performance
- The fact that any shortage of capable candidates for executive roles should prompt scrutiny of companies’ leadership training and development processes before vast increases to executive pay awards
- The opportunity costs of top pay increases in terms of, for example, pay for low- and middle-income workers or investment in the business.
- The potential negative impact of wider pay gaps between executives and ordinary workers on employee engagement, productivity and ultimately business performance
- The potential increase in income inequality resulting from higher executive pay at major employers leading to socio-economic problems that would damage the UK’s long-term prospects of economic success.
Of course, CEO pay awards cannot be separated from their corporate and societal context. For this reason, the High Pay Centre has worked with a number of leading pension funds to develop a ‘fair reward framework’ conducting deeper analyses of the pay outcomes and processes at FTSE 100 companies. The framework covers CEO pay awards and CEO to worker pay ratios, but also whether or not companies have living wage policies for their lowest earning workers and whether society shares in the proceeds of business success through an appropriate tax contribution in keeping with the spirit of the law. It also looks at, for example, whether workers are consulted in the top pay setting processes and whether the company reports the proportion of workers with trade union membership. Where mechanisms for worker voice are in place, this ought to provide stakeholders with greater confidence that pay at all levels of the company is fair and proportionate.
How will all these debates shape executive pay in 2025?
The most recent High Pay Centre analysis found a big jump in average FTSE 100 CEO pay but a much smaller increase in the median – in other words a small number of the very biggest companies hiked top pay by a lot, but otherwise it remained steady. This might suggest that boards and investors at firms with a global footprint and a size and scale equivalent to big US corporates are inclined to swallow the arguments of the Capital Markets Task Force, but the case for higher executive pay at UK companies is treated more sceptically. It will be interesting to see if this becomes a more sustained trend as remuneration reports are published early next year.