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January 06, 2020

FTSE 100 CEOs earn the average UK annual salary in just three days

FTSE 100 CEOs earn the average UK annual salary in just three days

Data compiled by the Chartered Institute of Personnel and Development (CIPD) and the High Pay Centre think tank reveal that the bosses of the 100 leading firms on the UK stock exchange will be paid more in just three working days than the UK’s average annual wage of £29,559.

The average FTSE 100 CEO was paid £3.46m in 2018, equivalent to £901.30 an hour. The average full-time annual salary in the UK is £29,559, or £14.37 an hour. Top bosses therefore earn about 117 times more than the average employee.

“The escalation in [CEO] pay over recent decades, both in absolute terms and in relation to the earnings of production workers, has generated considerable attention,” writes economist Michael Bognanno for IZA World of Labor. “The pay of top executives has grown noticeably in relation to overall firm profitability.” 

For the first time, 2020 will see publicly listed firms with more than 250 UK employees having to disclose the ratio between their CEO and average workers’ pay, and explain the reasons for their executive pay ratios.

The UK government’s Business Secretary, Andrea Leadsom, describes the pay gap as “concerning,” but believes the changes to the reporting rules will help to shed light on the issue and “increase transparency around how directors meet their responsibilities.” 

CIPD chief executive Peter Cheese says that “Pay ratio reporting will rightly increase scrutiny on pay and reward practices, but reporting the numbers is just the start.

“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.”

Luke Hildyard, director of the High Pay Centre, notes how “CEOs are paid extraordinarily highly compared to the wider workforce, helping to make the UK one of the most unequal countries in Europe.”

Bognanno looks at both sides of the debate in his IZA World of Labor article, he says that both sides “implicitly acknowledge that self-interest motivates CEOs. Critics believe that structures to protect shareholders from excessive CEO compensation are inadequate, while advocates view pay as competitively determined. While both sides make a compelling case […] managerial power has exerted an influence on CEO pay. Although empirical evidence of effectiveness is lacking, measures that enhance the transparency of compensation packages and strengthen the voice of shareholders on pay issues might help move CEO pay toward just levels. Lengthening the vesting periods for equity-based compensation and stock options, though not necessarily to the same extent for all firms, might help improve incentives.”

Read more IZA World of labor articles on personnel economics and inequality.