British bosses are being urged to explain corporate executive pay after new research suggested the highest earners receive 117 times the annual wage of the average worker in the United Kingdom.
Chief executives of companies in the FTSE 100 who started work this year on January 2 only need to work until just before 5pm on Monday to make the same amount of money that the typical full-time employee will earn this entire year, according to a study from the Chartered Institute of Personnel and Development and think-tank the High Pay Centre.
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The groups said their findings revealed the average FTSE 100 chief executive was paid £3.46 million ($4.6m) in 2018, equivalent to £901.30 ($1,185) an hour.
In comparison, the average full-time worker took home an annual salary of £29,559 ($38,850), equivalent to £14.37 ($18.89) an hour.
“This tells you everything about how unfair our economy is. Every working person plays a part in creating Britain’s wealth, but people at the top are taking more than their share,” said Frances O’Grady, general secretary of the Trades Union Congress.
“We need a real plan from the government to tackle excessive pay. Reporting on it is only the start, there should be seats for workers on pay committees and company boards to stop fat cats taking more than their fair share.”
“This is the first year where businesses are really being held to account on executive pay. Pay ratio reporting will rightly increase scrutiny on pay and reward practices, but reporting the numbers is just the start,” said Peter Cheese, chief executive at the CIPD.
Publicly listed firms with more than 250 UK employees must disclose the ratio between chief executive pay and that of their average worker, and explain the reasons for their executive pay ratios, under legislation that comes into action for the first time in 2020.
The CIPD and High Pay Centre called on businesses not to treat the new reporting requirements as a “tick-box” exercise, and to use it as an opportunity to fully explain chief executive pay levels.
“We need businesses to step up and justify very high levels of pay for top executives, particularly in relation to how the rest of the workforce is being rewarded,” said Cheese.
“Greater fairness and openness in pay is essential in building trust, amongst employees as well as external stakeholders and investors.”
Comparing CEO salaries to the average salary serves to stoke public hostility, and misleads workers to believe that cuts at the top end will directly translate to top-ups at the bottom
Luke Hildyard, director of the High Pay Centre, added: “CEOs are paid extraordinarily highly compared to the wider workforce, helping to make the UK one of the most unequal countries in Europe.
“New reporting requirements mean that publicly listed firms will have to be more transparent over how and why they reward their CEOs relative to the wider workforce. Hopefully this will lead to a more sensible balance between those at the top and everyone else.”
The Conservative government’s business secretary, Andrea Leadsom, praised what she called “world-leading legislation” to improve corporate transparency.
“Today’s figures will be eye-watering for the vast majority of hard-working people across the UK,” she said.
“The numbers are better than they were … but the situation is still concerning, especially in those cases where executives have been rewarded despite failing their employees and customers.
“Our world-leading legislation shines a light on excessive pay and forces companies to disclose and explain the pay of their CEOs, with new reforms this year to increase transparency around how directors meet their responsibilities and future plans to ensure companies cannot shy away from required reporting on executive pay.”
But while union leader Tim Roache, general secretary of GMB, said it was “a source of national shame” that “company fat cats” will already have made more money than the typical worker will in the rest of the year, corporate bosses also have their champions.
“Comparing CEO salaries to the average salary serves to stoke public hostility, and misleads workers to believe that cuts at the top end will directly translate to top-ups at the bottom,” said Mark Littlewood, director general at the Institute of Economic Affairs.
“In today’s globalised economy, the role of the chief executive has become significantly more important; the successes, failures and sudden departures of CEOs can increase or diminish a company’s worth by billions of pounds – which can also result in the gain or loss of thousands of jobs.
“By continuing our obsession with high pay, we dismiss the achievements of successful CEOs which benefit employees and customers alike; and we distract ourselves from tackling the critical issue of low pay and the cost of living crisis.”