Such sizeable pay increases that do not appear linked to any exceptional individual performance are typical within a broken executive pay model.
A few months ago, in the aftermath of the Government’s budget, we argued that policymakers had missed a significant opportunity to raise needed revenue via greater taxation on a banking sector riding high on sizeable windfall profits. We noted how this had come on the back of cuts to the bank surcharge tax under the Tories, as well as the rise in the Bank of England’s interest rates resulting in greater interest payments accruing to banks. This meant the ‘big four’ FTSE100 banks made £45.9bn of profits in 2024 alone. These are typical windfall profits based on external circumstances and should have been taxed accordingly.
The ramifications of the Government’s failure to adjust their tax policy toward banks are now starting to make themselves clear: UK bank bosses pay just hit its highest level in over a decade after three of the ‘big four’ published their annual results. The total spend of these three banks on their CEO’s has risen from £22.7m last year to £27.7m, a 28% increase. With the slashing of regulation on banker pay introduced following the 2008 crash, these are the exact circumstances that will likely anger and concern the public given the role that excessive banker payouts have played in previous economic downturns.
Given the UK’s context of long-term wage stagnation, a 28% pay rise is understandably well beyond the reach of the vast majority of workers across the country. The employees of these three major banks are no exception: median employee pay across the three employers increased by just 5.6% compared with the previous year—only marginally above the rate of inflation. For those employees at the 25th percentile, this figure was even lower at 4.3%. This obscures the likely thousands of workers whose pay has remained largely the same while their bosses have reached record levels, leaving the average CEO-to-median employee pay ratio at the three firms at 169:1, while at the 25th percentile this is 247:1.
The link between performance and pay is a tenuous one at best. While profits and share-prices have soared amongst these firms, this growth is largely attributable to the previously mentioned favourable unforeseen external circumstances, as opposed to exceptional strategic leadership or effective long-term investment in employees. In the case of Lloyds, an internal investigation is underway after they used staff bank account data in pay talks, while the Information Commissioner’s Office have begun inquiries as to whether they may have breached data privacy rules. Seeing their boss receive such an excessive payout in the same year as this blatant breach of their privacy must surely be a kick in the teeth for Lloyds employees.
Ultimately, it is a stretch to believe that these executives have performed so exceptionally in the past year to justify such rises, yet this remains typical within a broken executive pay model. Over the coming months, as more pay figures are released into the public domain, the High Pay Centre will continue to assess, scrutinise and comment on those that appear misaligned with company performance, employee pay and the expectations of wider society.