Fat Cat Friday, just three working days into 2019, is the point when the UK’s top bosses make more than a typical full-time worker will earn in the entire year, highlighting the problem of rising executive pay.
The calculations, compiled by the CIPD and High Pay Centre, revealed that the average full-time UK worker earns a gross annual salary of £29,574. A FTSE 100 CEO on an average pay packet of £3.9 million only needed to work until 1pm on Friday 4 January 2019 to earn the same amount.
The 2018 analysis of executive pay also revealed that earnings have risen 11 per cent year-on-year from £3.5 million in 2017. Highlighting the issue of rising executive pay, the CIPD and High Pay Centre launched a report, RemCo reform: Governing successful organisations that benefit everyone, identifying the shortcomings of remuneration committees charged with setting executive pay and called for them to be significantly reformed.
“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,” said Peter Cheese, chief executive of the CIPD.
The two organisations have called for significant reforms to remuneration committees, including: bringing greater diversity among those responsible for setting CEO pay in terms of ethnicity and gender, and also in their professional backgrounds and expertise in order to combat ‘group think’. As well as wanting to reform current pay mechanisms, which they believe contribute to the problem of high pay.
The report recommended replacing long-term incentive plans as the default model for executive remuneration with a less complex system based on a basic salary and a much smaller restricted share award. It argued that this would simplify the process of setting executive pay and ensure that pay is more closely aligned to executive performance.
“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,” said Luke Hildyard, director of the High Pay Centre.
“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.”
The call for greater remuneration committee control over executive pay follows the roll-out of new CEO pay ratio legislation. As of 1 January, UK listed companies with more than 250 employees will have to disclose and explain their top executive’s pay and the gap between that and their average worker.
