‘Unjustifiable’ CEO pay rises continue to soar in face of weak Government response

By 03.12.12BlogSeptember 2nd, 2020No Comments

New report from the High Pay Centre reveals executive pay increases slipping under the radar

Independent think tank the High Pay Centre today claims that the Government’s inaction on executive pay has allowed the UK’s top bosses to grab inflation-busting pay increases averaging 12 per cent (according to Manifest/MM&K) in the last financial year, while the pay of British workers stagnated at just 2.8%.

In its new report, The State of Pay, The High pay Centre said the deals were part of a trend that has seen average CEO pay treble over the past 10 years in the face of the banking crisis, a depressed economy and public anger over bosses’ bonus deals.

Despite the promises of Government action, little has changed. New measures giving shareholders the power to veto executive pay increases were a step in the right direction, but a vote every three years is unlikely to achieve significant change.  Though some shareholders have attempted to rein in recent executive excesses, they often struggle to make their voices heard. Over the course of the ‘shareholder spring’ just two FTSE 100 pay packages were voted down.

Deborah Hargreaves, the director of the High Pay Centre, said:  “There has been no clear change in the boardroom culture and no recognition that these pay awards are unacceptable”

At the same time, the government has not adopted the High Pay Commission’s recommendation to open up pay committees to include a worker representative, and dramatically simplify top-level pay. As a consequence executive pay continues to rise sharply.

The report highlights the meteoric rise in CEOs’ pay across the FTSE-100.

  •  In 2006 the average FTSE 100 chief executive pay package was £3,309,000.
  •  In 2011 the average FTSE 100 chief executive pay package rose to £4,771,000.
  • Top pay has trebled in the past 10 years while share prices have been stagnant

At the same time, the majority of Britons are living with job insecurity, unemployment, pay freezes, inflation and cuts to basic services.

Ms Hargreaves said: “It’s wrong that Britain’s bosses are taking home more and more money as their companies shrink, their employees are squeezed and jobs are being lost. CEOs are hoping that their big bonus and their inflated rewards culture will escape attention, now that the banking crisis has passed.
“However, the High pay Centre will keep the spotlight on this issue, now and in the coming months. These pay increases are damaging to the economy and to the morale of Britons struggling to make a living.”

Most of the growth in top pay in recent years has not been in salaries, but in bonuses, grants of restricted shares, long-term incentive plans and a raft of new and innovative pay structures. This pushed the pay of a FTSE 100 CEO up by 12 per cent last year to £4.8 million or 185 times average wages.

“The High Pay Centre has consistently called for a dramatic simplification in CEO pay packages. But in the vast majority of cases, the way leaders are rewarded remains complex and hidden from public scrutiny,” Ms Hargreaves said.

There is a widespread recognition that the runaway growth of executive pay has become completely divorced from company performance. But despite being willing to acknowledge the problem of high pay, Government has failed to identify a solution.

Ms Hargreaves said: “High pay – with rewards that are out of kilter with results – is having a corrosive impact on our living standards, our economy and our society. It damages public trust in businesses and it demoralises employees whose rewards for their efforts are tiny in comparison with their bosses.

“The issue of high pay will not resolve itself. The High Pay Centre is calling for a public debate on pay. This debate must bring together businesses, shareholders, trade unions, employees and civil society to debate what is fair pay in the 21st century.”

Ms Hargreaves said the debate must answer the following questions:

  • Who creates wealth and how should they be rewarded?
  • What are we paying executives for?
  • By what measures should company success be tested, and who should decide them?
  • What are the long-term effects of unequal pay, and who has to bear their cost

Next year the High Pay Centre will be hosting a series of public events to explore the future of CEO pay and wages for the rest of the workforce.

(to view the full report, visit out publications page)