FTSE 100 chiefs rake in 131 times the average pay of staffers
21 August 2014 -
Industry leaders risk alienating their employees, as executive salaries continue to soar after three decades of increases
Workforces in some of Britain’s biggest companies are suffering an alarming pay gap between higher and lower-level staff, with new research from campaigning group the High Pay Centre showing that top executives earn 131 times more on average than their employees. The data highlights how the difference in salaries between bosses and workers has widened to a chasm since the 1980s, mainly down to ballooning pay awards at the top.
An analysis of six major UK companies in 1980 found that CEOs were paid anything between 13 and 44 times the wages of their average employees. A similar study of 1998 revealed that the pay of a typical FTSE 100 was 47 times higher than that of an engine-room staffer. In its latest research, the High Pay Centre compared pay for FTSE 100 chief executives – as recorded in their annual Companies House reports – to figures for average pay at each firm sourced from Pensions and Investment Research Consultants (PIRC). That comparison produced the headline ratio.
In some of the most remarkable results, for example, Richard Cousins – chief of food service giant Compass Group – has a handsome £5.5 million annual package, while his average worker receives £13,248. And British American Tobacco boss Nicandro Durante is paid £6.5 million, while his employees earn an average £21,309.
However, the biggest salary gap between boss and shop floor was found to be at communications company WPP, where CEO Martin Sorrell receives a salary that is almost 800 times higher than that of his employees. Next boss Lord Wolfson did not emerge unruffled from the study either, as he was found to be paid 459 times more than staff. However, Lord Wolfson has famously distributed his bonus among his workforce.
High Pay Centre Director Deborah Hargreaves stressed that huge salary gaps between the c-Suite and the rank and file can cause unrest in the workplace. “While government figures confirm that wages for ordinary workers keep falling,” she said, “it’s clear that not everyone is feeling the pain. When bosses make hundreds of times as much money as the rest of the workforce, it creates a deep sense of unfairness.”
She added: “Britain’s executives haven’t got so much better [at their jobs] over the past two decades. The only reason why their pay has increased so rapidly compared to their employees is that they are able to get away with it. The government needs to take more radical action on top pay to deliver a fair economy that ordinary people can have faith in.”
Interestingly, the Centre’s research has arrived in the same week as CMI’s findings on gender-related pay disparities, which have focused the business community on an alarming gap between male and female managers. In particular, the study found that many women would have to work at least 15 years past the pensionable age of 65 to make the same amount of money as men before retiring.
Speaking earlier this year on the issue of pay disparities within leading industries, Bob Damon of executive search firm Korn Ferry International said that supply and demand has a huge part to play in rising executive salaries. Damon argued that, at the highest level, companies are looking for a special type of CEO who encompasses more than just experience, qualifications and connections, and has the talent to spearhead change and growth with a company. However, those A-list CEOs are in short supply, and when they become available to poach from competitors, large remuneration plays a decisive role role.
That, though, has not stopped the Coalition from trying to introduce measures to curb executive pay in recent years. As a result of political pressure from business Secretary Vince Cable, firms are now required to make their remuneration reports easier to understand and increase transparency by publishing the details of all directors’ salaries. The High Pay Centre argues that the government should also be implementing a maximum pay ratio, which would limit the divide between CEOs and workers.
A spokesman for the Department for Business, Innovation and Skills said: “The government has introduced comprehensive reforms to give shareholders more powers, in order to restore the link between top pay and performance – which, in recent years, has become excessive and increasingly disconnected. In October 2013, new laws reforming the governance of top pay came into force, boosting transparency by arming shareholders with more information and giving them the power to hold companies to account.”
Download CMI’s recent white paper on management pay.
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