Lovewell’s logic: Are government measures enough to curb CEO pay?

Where do you stand on chief executive (CEO) pay? Do they receive a fair salary reflective of their role and responsibilities? Or have their pay and remuneration packages reached unjustifiable heights?

Earlier this week, the government announced it is to introduce new laws requiring listed organisations to publish the pay ratio between their CEO and average UK employee.

Under the terms of the legislation, which is expected to come into effect by June 2018, listed organisations will be required to publish and justify their CEO-to-average UK employee pay ratio, while all organisations of a significant size will be forced to publicly explain how directors account for employees’ and shareholders’ interests. All large employers will also be required to make their responsible business arrangements public.

The move follows an initial pledge to rein in executive pay by prime minister Theresa May in her pre-election campaign.

The average FTSE 100 CEO now receives a pay packet worth £4.5 million, according to analysis by the Chartered Institute of Personnel and Development (CIPD) and the High Pay Centre, which was published in August. Although this represents a 17% fall from £5.4 million in 2015, it would still take the average UK employee earning £28,000 a year (based on median full-time earnings) 160 years to earn the same as an average FTSE 100 CEO in one year.

The report also found that the pay ratio between FTSE 100 CEOs and the average UK employee stood at 129:1 in 2016, down from 148:1 in 2015. Just under two-thirds (60%) of the FTSE 100 CEOs are also paid more than 100 times the typical annual pay of a UK employee, which currently stands at £28,000 based on mean earnings.

Of course, some FTSE 100 CEOs earn substantially more than this. WPP’s Martin Sorrell, for example, was the highest-earning FTSE 100 CEO in 2016, taking home over £48 million.

So, can such figures ever really be justified?

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Or will the government’s new legislation achieve its aims in curbing excessive executive remuneration? Indeed, do its measures go far enough or is a tougher stance needed to really effect change?

Debbie Lovewell-Tuck
Tweet: @DebbieLovewell