Average salary of FTSE 100 CEOs drops by 17 per cent in 2016

A new study has shown that FTSE 100 CEOs have had an average salary decrease of 17 per cent, despite increase in CEOs with on a lower salary. Concerns have also been raised over a gender pay disparity.

London stock exchange square, FTSE 100 CEOs average salary drops by 17%

Relocate Editorial

3 August 2017

An annual assessment of FTSE 100 CEO pay packages released today shows that rewards at the top have dropped by almost a fifth, but still remain extraordinarily high.The analysis, from the CIPD, the professional body for HR and people development, and the High Pay Centre, the independent think tank, shows that the average FTSE 100 CEO now receives an annual pay package of £4.5 million. This represents a 17 per cent drop from £5.4 million in 2015.While this may represent a significant drop in CEO pay packages, it would still take the average UK full-time worker on a salary of £28,000 (median full-time earnings) 160 years to earn what an average FTSE 100 CEO is paid in just one year and 1,718 years to earn what Sir Martin Sorrell, CEO of WPP, received last year alone (£48.1 million).Key highlights from the CIPD and High Pay Centre’s analysis include:

Analysis found that in 2016, the pay ratio between FTSE 100 CEOs and the average pay package of their employees was 129:1 – so for every £1 the average employee is paid, their CEO receives £129. In 2015, the ratio was 148:1

60 of the FTSE 100 CEOs are paid more than 100 times the typical annual pay of a UK worker which currently stands at £28,000 per year (mean earnings)

In contrast to the generous pay packages awarded at the higher levels, just over a quarter of the FTSE 100 are accredited by the Living Wage Foundation for paying the voluntary living wage to all their UK-based staff

There are just six female FTSE 100 CEOs. While women make up 6 per cent of the FTSE 100, they earn just 4 per cent of the total pay. Male CEOs in the FTSE 100 earned on average £4.7 million last year, compared with £2.6 million on average for women

Gender pay disparity still significant

Peter Cheese, chief executive of the CIPD, said, “We have to hope that the reversal in rising executive pay is the beginning of a re-think on how CEOs are rewarded, rather than a short-term reaction to political pressure. The fall in executive pay is a step in the right direction, but it’s still happening within an overall reward system where average wages in the UK have been flat.“Our analysis also shows a clear gender pay disparity at the top, with female CEOs receiving less than their male peers. Quite rightly this issue of fairness is increasingly being called out and this needs to be addressed at all levels of businesses. “Rather than focusing predominantly on share price or short-term profit, we need a much more balanced scorecard for performance that also takes account of other indicators of success such as investment in people, social responsibility and accountability, and long-term value creation. High pay must be addressed as part of the much broader review of UK corporate governance.”Stefan Stern, director of the High Pay Centre, said, "We have finally seen a fall in executive pay this year, in the context of political pressure and in the spotlight of hostile public opinion. This is welcome, but the response has been limited and very late. It is also, so far, a one-off.“We need to see continued efforts to restrain and reverse excess at the top. And we should beware the ratcheting up of pay lower down the FTSE league table as CEOs and remuneration committees ‘chase the median’. This helps nobody but a few lucky top execs".

Government commitment to economy that works for everyone

Business Minister Margot James, said, “It remains this government’s firm commitment to build an economy that works for everyone, making Britain one of the best places in the world to work, invest and do business.“We have been very clear that to achieve this ambition businesses should be run responsibly, including ensuring executive pay is properly aligned to performance as outlined in the Corporate Governance Reform green paper.“This report shows encouraging signs that the UK’s largest firms are already making progress in this area and our responsible business reforms, which we will publish shortly, will help to enhance the public’s trust and confidence in big business.”The CIPD/High Pay Centre’s analysis highlights how the gap between the highest and lowest FTSE 100 pay packages has closed as companies ‘chase the median’, which currently stands at £3.45 million.The average pay packages of the 25 highest paid CEOs have dropped by 24 per cent to £9.4m in 2016. Conversely, the 32 lowest paid CEOs in the FTSE 100 have seen an increase in their overall package. The CIPD and High Pay Centre are warning that this trend of ‘chasing the median’ needs as much attention from the Government and investors as is given to earners at the top end of the scale.Further findings from the CIPD/High Pay Centre analysis

Median FTSE 100 CEOs’ pay in 2016 was £3.45 million, a drop from recent years and marginally higher than £3.39 million in 2010.

Comparing the median pay of a FTSE 100 CEO to that of a full-time worker, the pay ratio stands at 122:1, or 149:1 when compared against all UK employees.

This ratio rises to 132:1 when comparing the average or ‘mean’ pay of a FTSE 100 CEO with that of a full-time worker across the whole UK economy.

To advocate fairer and more ethical approaches to pay and reward, the CIPD and High Pay Centre have recommended that all publicly listed companies should be required to:

Publish the ratio between the pay of their CEO and median pay in their organisation, within the context of their overall reward strategy

Have employee representation on their remuneration committee

Establish a human capital development sub-committee with a wider remit to focus on all aspects of people, culture and organisation to provide better insight and guidance to the Board and beyond

In addition, the CIPD and High Pay Centre are recommending that the Government should set voluntary human capital (workforce) reporting standards to encourage all publicly listed organisations to provide better information on how they invest in, lead and manage their workforce for the long-term.

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In response to the findings, Luke Hildyard, policy lead, Stewardship & Corporate Governance, Pensions and Lifetime Savings Association, commented, “This is a small but significant reduction and we view this positively. The extraordinarily high executive pay awards that have become commonplace in recent years were never going to fall to more sensible, proportionate levels overnight, so a small but significant reduction should be viewed positively.“However, any complacency would be wrong. PLSA research has suggested that many companies are not listening to feedback from shareholders on this issue and the vast majority of pension fund investors think that pay gaps between executives and the wider workforce are too large.“Our members will be concerned by the fact that multi-million pound pay packages remain the default arrangements for CEOs, despite an absence of convincing evidence that they are necessary to incentivise or reward good leadership.”For related news and features, visit our Human Resources section.Access hundreds of global services and suppliers in our Online Directory Get access to our free Global Mobility Toolkit

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