According to ICAEW the average CEO pay is now 118 times that of the average UK worker, compared with 108 times in 2021 and 79 times in 2020.
The UK has a comprehensive regulatory framework governing directors’ remuneration reports and policies (Companies (Directors’ Remuneration Policy and Directors’ Remuneration Report) Regulations 2019). Amendments were made in 2019 to bring the UK regime into line with amendments to the EU Shareholders Rights Directive. The scope of this legislation now encompasses unquoted traded companies as well as quoted companies and implemented a requirement that companies must additionally report on the remuneration of anyone in the role of the CEO, or deputy CEO, even if they are not a board director. Companies meeting the aforementioned criteria, with more than 250 employees in the UK, must each year disclose and explain the ratio between their CEO’s pay and the median, lower quartile and upper quartile pay of their UK employees.
Excessive CEO pay is one of the top reasons for lack of trust in business. Boards now need to be vigilant on the impact of increasing executive pay in difficult economic times. Hikes in interest rates and the knock-on effect on mortgage repayments and rents have created a serious cost- of-living crisis. This, combined with poor pay and working conditions for lower paid staff, can be counter intuitive to published business policies and social aims.
It would be far more sensible for renumeration committees to think about allocating the funds for a CEO pay rise to other well needed staff budgets – particularly when so many CEOs are already multimillionaires (e.g. AstraZeneca’s CEO Pascal Soriot was the highest paid CEO, making £15.32m, ahead of Charles Woodburn of BAE Systems, who made £10.69m. in 2022).
UK Government now needs to consider reforming the rules further by, for example, placing a minimum of two elected workers on remuneration committees, setting maximum pay ratios, calling for greater transparency on executive team pay and replacing long-term incentive payments with profit shares common to all staff.
The HPC argued that CEO pay rises can be connected with the economic recovery and growth in 2021 and 2022 following the pandemic. Retaining high quality executives in very competitive and challenging markets can also contribute to significant salary gaps as Businesses try to attract and retain what is perceived to be the vital few.
The FTSE100 CEO pay fell dramatically during the pandemic and rebalancing this in 2024 with the cost-of-living crisis may be a difficult challenge for remuneration committees. The optics on this may simply not add up especially when pay disputes are being managed across many sectors at present.
However, when it comes to global competition across a limited fishing pond, the FTSE 100 CEO pay is much lower than the median pay of US and Canadian CEOs.
Concluding Thoughts
The Chief Executive role is certainly a challenging one with a myriad of accountabilities. The roles are often worthy of competitive salaries due to the scope and scale of the role and challenges a Business may face. This often means increasing remuneration packages to acquire the best in breed within a limited global talent pool.
A Company’s mission statement and goals within society can often be marred by the exposure of bloated executive salaries which are disproportionate to the rest of the organisation. Value for money and explanation to shareholders is needed to clarify the decisions taken to award CEO salaries. That said there are many ways of incentivising a leader, other than base salary alone, and it’s time for remuneration committees to explore all available avenues.
However not all CEOs are walking home with excessive salaries. Many start-ups and smaller firm CEO’s continue to draw down minimal pay to support business growth and cashflow problems. Statistics show that the CEO Founder salaries range from £53-150K in the UK.
Some of these comments were published in Compliance Week.