By early afternoon today, only three working days into 2019, the average FTSE100 CEO will have already been paid what it will take a typical UK worker all year to earn, according to calculations from independent think tank the High Pay Centre and the CIPD, the professional body for HR and people development.
The average (median) full-time worker in the UK earns a gross annual salary of £29,574. “Fat Cat” Friday recognises that in 2019 the average FTSE 100 CEO, on an average (median) pay packet of £3.9 million, only needs to work until 1pm on Friday 4 January 2019 to earn the same amount. The £3.9 million figure was calculated by the CIPD and the High Pay Centre in their 2018 analysis of top pay and it marks an 11% increase on the £3.5 million figure reported in their 2017 analysis. The pay increase means that FTSE 100 CEOs, working an average 12-hour day, will only need to work for 29 hours in 2019 to earn the average worker’s annual salary, two hours fewer than in 2018.
The CIPD and High Pay Centre are highlighting the problem of rising executive pay in a new report launched today. The report, RemCo reform: Governing successful organisations that benefit everyone, identifies the shortcomings of the remuneration committees (RemCos) charged with setting executive pay and calls for them to be significantly reformed.
CEO pay has been traditionally high based on a myth of ‘super talent’ – with one remuneration committee chair commenting: “It’s nuts… and nuts has become the benchmark”.
Among the recommendations, the report calls for more diversity among those responsible for setting CEO pay, both in terms of their ethnicity and gender, for example, but also their professional backgrounds and expertise in order to combat ‘group think’.
The CIPD and High Pay Centre recommend replacing long-term incentive plans (LTIP’s) as the default model for executive remuneration with a less complex system based on a basic salary and a much smaller restricted share award. This would simplify the process of setting executive pay and ensure that pay is more closely aligned to executive performance. They are also calling for CEO pay to be more appropriately aligned to rewards across the wider workforce and that their contribution is measured on both financial and non-financial measures of performance.
This should include measures such as employee well-being and investment in workforce training and development – all of which are crucial for good corporate governance.
Peter Cheese, chief executive of the CIPD, comments:
“There is still far too great a gap between top earners and the rest of the workforce. Average pay has stagnated whilst top CEO reward has grown, despite overall slow economic growth and very variable business performance. Excessive pay packages awarded by remuneration committees represent a significant failure in corporate governance and perpetuate the idea of a ‘superstar’ business leader when business is a collective endeavor and reward should be shared more fairly.
“This imbalance does nothing to help heal the many social and economic divides facing the country…. by better reflecting the value, contribution, diversity and well-being of our workforces in corporate governance and reporting, we can help restore trust in business and drive better business outcomes for everyone.”
Luke Hildyard, Director of the High Pay Centre, said:
“Excessive executive pay represents a massive corporate governance failure and is a barrier to a fairer economy. Corporate boards are too willing to spend millions on top executives without any real justification, while the wider workforce is treated as a cost to be minimised. To raise living standards, we need growth and innovation, but also to ensure that growth is fairly distributed. CEO pay packages 133 times the size of the average UK worker suggest we could do a lot better in this respect.”
TUC General Secretary Frances O’Grady said:
“There are millions of hardworking people in Britain who give more than they get back, but greedy executives are taking more than they’ve earned.
“We need to redesign the economy to make it fair again and that means big reforms to bring fat cat pay back down to earth. Executive pay committees have to change. They should be required to include workforce representatives who can speak up for a fair balance of pay with ordinary workers.”