An analysis released this week by the CIPD and the High Pay Centre highlights the extent of income inequality in the UK by comparing the compensation of FTSE 100 CEOs to that of Britain’s average full-time employee, the Guardian’s Rupert Neate reports:
The chief executives of FTSE 100 companies are paid a median average of £3.45m a year, which works out at 120 times the £28,758 collected by full-time UK workers on average. On an hourly basis the bosses will have earned more in less than three working days than the average employee will pick up this year, leading campaigners to dub the day “Fat Cat Thursday”. …
The analysis … shows chief executives of FTSE 100 companies are paid an average of £898 per hour – 256 times what apprentices earn on the minimum wage.
The ratio between the pay of the CEO and the average employee (the definition of which is a matter of some controversy) is becoming a widely accepted standard for measuring income inequality within organizations and societies. As the pay gap between top executives and the rank and file has grown in recent decades, spurred on in some cases by tax loopholes, activists have decried this trend as evidence that CEOs are overpaid, while employees are not receiving their fair share of growing corporate profits.
In an effort to address inequality and curb CEO pay packages deemed excessive, the UK government has proposed new laws that will require listed companies to publish and justify their CEO-to-median-employee pay ratios, along with “naming and shaming” companies whose shareholders object to executive compensation plans as determined by the board. A similar disclosure rule was adopted in the US by the Securities and Exchange Commission in 2015, which will require public companies to publish their pay ratios in their proxy statements, starting with the 2017 fiscal year. Portland, Oregon has gone a step further and imposed a surtax on companies doing business in the city whose CEOs earn more than 100 times their median employee.
These impending rules have sparked anxieties over how to communicate these numbers to employees without incurring a negative reaction, particularly among employees who discover that their own salary is below average. Opponents of pay ratio reporting say it won’t have the intended effect of reducing income inequality, but rather will make it harder for businesses to compete for top executive talent, hurting businesses and their employees. The Adam Smith Institute, a neoliberal think tank in the UK, makes this counterargument in comments to the BBC:
“Given how important the decisions a CEO makes are to the success of a firm, it would be shocking if they were not extremely well paid,” said Sam Dumitriu, head of research at the institute.
“The High Pay Centre are wrong to link high pay at the top with low pay at the bottom,” he added. “Poorly performing CEOs are bad for shareholders, but worse for workers. Politicians should be careful. Bashing CEO pay may sound good on the stump, but if British businesses lose out on top talent to the US and Europe, British workers and savers will pay the price.”
Some critics of high executive pay, meanwhile, doubt that these reporting rules will solve the problem, Emily Burt reports at People Management:
TUC senior policy officer Janet Williamson … said pay ratio reporting alone would not be enough to drive change in organisational behaviour – or improve workplace fairness around pay.
“Reporting on pay ratios will provide useful information and put a focus on the gaps between the average members of the workforce and those at the top of a company, but it will take people acting on that information to effect change,” she said. In the past there has been much emphasis in policy proposals on executive pay disclosure, “but these have not proved successful to date in reducing executive pay”, Williamson told People Management.