Huge pay gap persists despite fall in average CEO package

PAY PACKAGES for the top bosses of the UK's biggest companies declined last year but executives still earned more money in the first three days of the year than average workers earn in a year.
Persimmon chief executive Jeff Fairburn's £100m bonus is under fire.Persimmon chief executive Jeff Fairburn's £100m bonus is under fire.
Persimmon chief executive Jeff Fairburn's £100m bonus is under fire.

The mean pay of chief executives in FTSE 100 companies fell by a fifth from £5.4m to £4.5m – 120 times more than an average full-time worker, a slight drop on the ratio of 122-1 in the previous year.

Today was dubbed Fat Cat Thursday, as the pay of top executives will pass the median annual salary of £28,758 for employees.

Hide Ad
Hide Ad

The High Pay Centre think tank and the Chartered Institute of Personnel and Development (CIPD) said there had been “modest” restraint by company boards but the pay gap between the top and average workers remained wide.

Morrisons' CEO David PottsMorrisons' CEO David Potts
Morrisons' CEO David Potts

All listed companies will have to publish the pay ratio between bosses and workers under new corporate governance reforms this year.

The figures are published in a year in which the pay of Yorkshire’s top CEOs has been in the spotlight, with consternation expressed from everyone from board members and shareholders to rank-and-file workers and union leaders over what they regard as excessive remuneration packages.

Last month Jeff Fairburn, the boss of Yorkshire’s biggest PLC Persimmon came under fire for his £132m bonus package, a figure branded by Liberal Democrat leader Sir Vince Cable as “obscene”, despite being a long-term incentive plan rather than a payout.

Hide Ad
Hide Ad

Those angered by Mr Fairburn’s package argue that Persimmon’s profits have been massively boosted by the taxpayer-funded Help to Buy scheme, the Government project launched in 2013 to help first-time buyers get on the housing ladder.

Sir Martin SorrellSir Martin Sorrell
Sir Martin Sorrell

Similarly David Potts, chief executive of Morrisons, faced a backlash from investors after the board boosted his pay from £2.3m to £2.8m to reflect the grocer’s vastly improved performance under his leadership, with the increased pay only narrowly approved by shareholders.

Another chief executive facing backlash from investors was outgoing Burburry boss Christopher Bailey, who saw a 32 per cent vote against a rise in pay from £1.9m to £3.5m and receipt of £10.5m shares.

Peter Cheese, chief executive of the CIPD, said: “The drop in pay in the last year is welcome but will have largely been driven by the Prime Minister’s proposed crackdown on boardroom excess.

Hide Ad
Hide Ad

“We need a radical rethink on how and why we reward chief executives, taking into account a much more balanced scorecard of success beyond financial outcomes and looking more broadly at areas like people management.”

Morrisons' CEO David PottsMorrisons' CEO David Potts
Morrisons' CEO David Potts

Sir Martin Sorrell, chief executive of advertising giant WPP, was the highest paid boss for the second year, although his total pay fell from £70.4m to £48.1m.

He was followed by Arnold Donald of cruise company Carnival (£22m) Rakesh Kapoor of Reckitt Benckiser (down from £23.1m to £14.6m) and Pascal Soriot of pharmaceutical firm Astrazenica (£13.3m).

However Sam Dumitriu, head of research at the Adam Smith Institute, said: “The long-term trend suggests that CEOs are more valuable to firms now than ever before.

Hide Ad
Hide Ad

“Unexpected CEO departures are leading to ever bigger share price movements.

Sir Martin SorrellSir Martin Sorrell
Sir Martin Sorrell

“If shareholders, and that includes anyone with a private pension, want a return on their investments then hiring the right chief executive is essential.”

TUC General Secretary Frances O’Grady has called for workers’ representatives to be given seats on pay committees.

Related topics: