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Life gets tough for CEOs

This is especially worrying when ordinary employees’ wages have remained stagnant in real terms since the financial crash of 2008

There are plenty of people who will see the news that CEO pay in FTSE 100 companies has dropped by one-sixth as a good start, with the increasing gap between the packages granted to the highest paid and the salaries paid to the lowest – even in the same company – prompting widespread unease.

The size of this gap has formed a strand in a global discussion about increasing inequality and the intense concentration of wealth into fewer and fewer hands. This is especially worrying when ordinary employees’ wages have remained stagnant in real terms since the financial crash of 2008.

Independent thinktank High Pay Centre, which monitors executive pay, has joined the CIPD to research the level of CEO remuneration. These execs are not exactly cashing in their premium bonds to pay the gas bill, of course, with the average CEO of a FTSE 100 company receiving a package worth £4.5m; however, this has fallen from £5.4m in 2015 – a drop of 17%.

Before we all start reaching for our credit cards to make an urgent donation to the distressed chief executives benevolent fund, there are factors to weigh in the balance. Just one-quarter of these companies pay the living wage to their UK staff, with the average CEO earning 129 times the pay of the average employee.

After the BBC revelations, it will come as no surprise that male CEOs pocketed an average £4.7m, while females were forced to struggle on just £2.6m; 94% of these CEOs are male.

What’s more, the pay of the most highly-rewarded CEOs is reflected in median and mean pay statistics, which are then used as a rewards benchmark for remuneration committees in companies lower down the scale. The effect is that pay spirals upwards without any reference to performance.

Public reaction to excess corporate pay is extremely hostile – a fact that finally seems to be getting through to some of our larger companies. It comes to something when a traditionally business-friendly Conservative party starts talking about making sure that executive pay is aligned with performance and issues green papers on corporate governance reform.

The High Pay Centre and the CIPD want the government to set up voluntary reporting on its workforce, which would encourage public companies to report on how they pay, manage and invest in their own workforces.

Meanwhile, workers are taking the reporting into their own hands. The brilliantly-named Fat Cat Wednesday marked the day on which the pay of the average CEO passed the annual pay of the average worker – currently £28,200. In 2017, this was Wednesday 4 January – just days into the new year.

The forces lining up against excessive executive pay are pretty formidable. Report after report reveals almost no relationship between pay levels and performance, with shareholders getting restive and wanting a say. The fair pay bodies are coming up with ideas to bring the pay gap to everyone’s attention, and the Prime Minister has promised action.

It will be interesting to see what happens in the next year – further reform or business as usual?

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