Revealed this 'Fat Cat Friday' (the date at which the earnings of a typical FTSE 100 CEO surpass the average annual UK salary), the research found that full-time workers in the UK earn a median gross annual salary of £29,574. In 2019 a typical FTSE 100 CEO, on a median pay packet of £3.9 million, only needs to work until 1pm on Friday 4 January 2019 to earn the same amount.
The £3.9 million figure was calculated by the CIPD and the High Pay Centre in their 2018 analysis of top pay and marks an 11% increase on the £3.5 million figure reported in their 2017 analysis, meaning top bosses now earn 133 times more than the average worker.
The pay increase means that FTSE 100 CEOs, working an average 12-hour day, will only need to work for 29 hours in 2019 to earn the average worker’s annual salary, two hours fewer than in 2018. (Twelve hours is the amount the research assumes most CEOs work each day. It also calculates that the average CEO works 320 days a year, and over 19 days holiday and three out of four weekends.)
These findings come as the CIPD and the High Pay Centre highlight the problem of rising executive pay in their new report RemCo reform: Governing successful organisations that benefit everyone. The report identifies the shortcomings of the remuneration committees charged with setting executive pay and calls for them to be reformed.
It criticises the idea of ‘super talent’ justifying high executive pay and calls for greater diversity among those responsible for setting CEO pay – in terms of ethnicity, gender, professional background and expertise – to combat ‘group think’.
The CIPD and High Pay Centre also recommend replacing long-term incentive plans as the default model for executive remuneration with a simpler system including a basic salary and a much smaller restricted share award. This would simplify the process of setting executive pay and ensure that pay is more closely aligned to executive performance, the bodies said.
Peter Cheese, chief executive of the CIPD, said that excessive pay must be tackled to address inequality in the UK. “There is still far too great a gap between top earners and the rest of the workforce. Average pay has stagnated while top CEO reward has grown, despite overall slow economic growth and very variable business performance.
“Excessive pay packages awarded by remuneration committees represent a significant failure in corporate governance and perpetuate the idea of a ‘superstar’ business leader when business is a collective endeavour and reward should be shared more fairly. This imbalance does nothing to help heal the many social and economic divides facing the country,” he added.
Cheese said that stakeholders should work to improve their understanding of corporate cultures: “Stakeholders of all kinds, including many shareholders, are looking for significant shifts in corporate cultures and behaviours. Evolving the RemCo to become a broader people and culture committee would help boards focus on and gain deeper understanding of the organisational, cultural, and people aspects of their business, and the opportunities and risks they pose. By better reflecting the value, contribution, diversity and wellbeing of our workforces in corporate governance and reporting we can help restore trust in business and drive better business outcomes for everyone.”
Spiralling executive pay demonstrates a “failure in corporate governance”, added Luke Hildyard, director of the High Pay Centre. “Excessive executive pay represents a massive corporate governance failure and is a barrier to a fairer economy. Corporate boards are too willing to spend millions on top executives without any real justification, while the wider workforce is treated as a cost to be minimised," he said.
“To raise living standards we need growth and innovation, but also to ensure that growth is fairly distributed. CEO pay packages 133 times the size of the average UK worker suggest we could do a lot better in this respect.”
This month, new legislation will come into force requiring companies with 250 employees or more to publish their executive pay gap, with the first reports expected in 2020.