Few business decisions come in for quite as much public scrutiny as how much money the CEO makes. In an era of widening income inequality, and considering that CEO pay has grown faster in recent decades than that of the average employee, executive compensation is more than ever a political issue, engendering considerable debate over whether this particular line item in the budget should be subject to government regulation or perhaps a staff vote. Into this mix comes a new US survey from PayScale and Equilar that compares CEO compensation to that of their employees and seeks to find out what employees think about that gap. Most employees, they find, don’t know how much money their CEO makes, and among those who do, most don’t have a problem with it:
Overall, we found more than half of employees don’t know what their CEO is paid, which makes sense considering that of the roughly 27 million businesses in the U.S., less than 1 percent are publicly traded. Private companies don’t have to follow the same disclosure laws as public companies, and executive pay is therefore generally not public knowledge. But unexpectedly, among employees who did have knowledge of their CEO’s salary, only 21 percent thought it was excessive, leaving 79 percent who didn’t see a problem. Even among employees who disapproved of their CEO’s salary, 43 percent said the information didn’t negatively impact their opinion of their company.
As expected, the general trend is that the higher employees move up the corporate ladder, the less inclined they are to disapprove of high CEO pay; at the director and executive level, approval ratings of CEO pay stand at 84 percent and 82 percent, respectively. But the approval rating is high even at the individual contributor job level, where—of employees who know what their CEO is paid—79 percent approve of the figure.
Mirroring the job level data, employees who are paid a higher salary are more likely to approve of high CEO pay, with workers making at least a six-figure salary reporting an 82 percent approval rate. At the other end of the pay scale, workers who make under $25,000 a year report 72 percent approval of their CEO’s pay, though at that pay level only 37 percent of employees are aware of their CEO’s salary.
It may be a different story in the UK, however. Peter Crush at the CIPD flags a new report showing that the pay of Britain’s top CEOs continues to rise, and point to the institute’s latest data showing that the yawning gap between employee and CEO pay has an impact on engagement:
FTSE 100 CEOs earned an average of £5.48m in 2015 – up from £4.96m a year earlier – which meant chief executives were paid 140 times more than the average employee, revealed the report from the High Pay Centre. In 2010, CEO pay was around £4.1m. The average weekly wage grew by 1.9 per cent last year according to official figures from the Office for National Statistics (ONS). In contrast to the ‘generous’ pay packages awarded to executives, only a quarter of FTSE 100 firms are accredited by the Living Wage Foundation for paying the voluntary living wage to their employees.
Peter Cheese, CIPD chief executive, said: “Not only is there a shocking disconnect between pay for those at the top and the rest of the workforce at large, but, worse still, this gap is continuing to grow despite our latest data showing it leads to a real sense of unfairness with a clear impact on employee motivation.”
A recent CIPD study showed that 59 per cent of employees say high levels of CEO pay in the UK is directly demotivating to them at work. “The message from employees is clear: ‘The more you take, the less we’ll give,’” added Cheese. “This kind of culture in the workplace is bad for both employers and employees.”
These perceptions are a big part of why Theresa May, the new prime minister, has promised to rein in excessive executive compensation by giving shareholders greater “say on pay.”