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‘Fat cat Thursday’ highlights UK pay inequality

In just three working days of 2018, the UK’s top bosses will have made more money than the typical UK full-time worker will earn in the entire year, leading Thursday 4 January 2018 to be dubbed ‘fat cat Thursday’.

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The calculations come from independent think tank The High Pay Centre, and the CIPD, the professional body for HR and people development.

 

The figures show that pay for top executives will pass the median UK gross annual salary of £28,758 for full-time employees on Thursday 4 January 2018.

 

The CIPD and High Pay Centre’s calculations come after a year which saw the mean FTSE 100 CEO pay packet fall by a fifth, down from £5.4m to £4.5m (2016 figures, as published in 2017). FTSE 100 CEO median pay also fell to £3.45m in 2016 (down from £3.97m in 2015). However, despite this year-on-year reduction in total pay among FTSE 100 bosses, the ratio of CEO pay to the pay of the average full-time worker stands at 120:1.

 

Peter Cheese, chief executive of the CIPD, said: “The drop in pay in the last year is welcome, although relatively marginal, and will have largely been driven by the growing public and shareholder concerns and the prime minister’s stronger focus on boardroom excess and plans to reform corporate governance. To ensure this year’s fall in CEO remuneration isn’t just a blip on the consistently upward trend of recent years – it’s crucial that the government keeps high pay and corporate governance reform high on its agenda.

 

“We also need business, shareholders and remuneration committees to do their part and challenge excessive pay, to understand pay and reward for top executives in the context of the whole organisation, and look at how pay is linked to driving sustainable performance. We need a significant rethink on how and why we reward CEOs, taking into account a much more balanced scorecard of success beyond financial outcomes, looking more widely at the impacts of businesses on all stakeholders from employees to society more broadly.

 

“The current review of the UK Corporate Governance Code provides a great opportunity to consider these issues. In particular, it should broaden board focus and the remit of remuneration committees to ensure there is much more understanding of the wider workforce and corporate cultures, and in particular how to engage employee voice and improve fairness and transparency.”

 

Stefan Stern, director of the High Pay Centre, said: “While it was encouraging to see a tiny amount of restraint on pay at the top of some FTSE100 companies last year, there are still grossly excessive and unjustifiable gaps between the top and the rest of the workforce. Publishing pay ratios will force boards to acknowledge these gaps. We look forward to working with business and government to make this new disclosure requirement work as effectively as possible.”

 

TUC general secretary, Frances O’Grady, said: “Workers are suffering the longest pay squeeze since Napoleonic times. But fat cat bosses are still getting salaries that look like telephone numbers. The government needs a plan to make the economy fair again.

 

“Workers should be given seats on pay committees to bring some common sense and fairness to boardroom pay. And the minimum wage should be put up to £10 an hour as quickly as possible.”

 

Charles Cotton, senior reward and performance adviser at the CIPD, said: “When considering executive and employee pay, reward decisions must be principles-led, evidence based and outcome-driven. It should be aligned to both financial and non-financial measures of business success, reflecting both short- and long-term performance. Executive pay should also be considered alongside how the wider workforce is being rewarded. In a year when real earnings will have fallen for many, excessive reward at the top will be strongly felt by the rest of the workforce.”

 

Previous CIPD research has shown that excessive CEO pay can have a damaging effect on the workforce. In its 2015 research report The view from below: What employees really think about their CEO’s pay packet a CIPD survey of more than 1000 working adults found that:

 

  • 71% agreed that CEO pay levels in the UK are generally too high.
  • 60% agree that CEO pay levels in the UK demotivate employees
  • 54% agree that CEO pay levels in the UK are bad for an organisation’s reputation

 

The Pensions and Lifetime Savings Association (PLSA), working with Lancaster University Management School, published Hidden Talent: What do companies’ annual reports tell us about their workers? in November 2017. The report examined corporate reporting employment models and working practices across the FTSE-100 and found substantial variations in the quality of reporting and lack of clarity.

 

Luke Hildyard, stewardship and corporate governance policy lead at the PLSA, said: “Huge pay differences between executives and the wider workforce symbolise how too many companies fail to understand or appreciate the value of their workers.

 

“Pension scheme investors use information about the employment models and working practices of the companies they invest in, including the pay gap between the top executives and the rest of the workforce, as indicators of the corporate culture. While companies spend a lot of time devising complicated and very generous pay awards, our Hidden Talent research found that only 7 per cent of FTSE 100 annual reports detail the ratio between the CEO’s pay and the wider workforce; only 21 per cent provide evidence of how much they are investing in training and staff development; and just 7 per cent show how much they rely on agency workers or other types of insecure employment.

 

“As long-term investors, pension funds think that boards should be more sceptical about the need for vast executive pay awards and focus on explaining how they are fostering innovation, improving productivity and developing a positive employment culture throughout their organisations.”

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