CEO pay falls in UK following regulatory pressure

The average FTSE 100 boss enjoyed a salary of £3.4 million in the year-to-end February 2019, according to a new study. The findings constitute a fall from the huge £4 million found last year, however the average UK employee would still need to work for 95 years to earn the same.

The pay of the UK’s highest ranking business chiefs has long been a major bone of contention in public discourse. While the majority of UK workers have endured stagnant wages that have never managed to reach their pre-recession levels when accounting for inflation, the good times have continued to roll for the CEOs of the FTSE 100.

This seemed to reach a peak in 2017, researchers from the High Pay Centre found in their annual survey of top executive pay that ordinary employees would have to work for 160 years to earn the average remuneration of FTSE 100 leaders. The average take home pay for the bosses of Britain’s top stock market-listed companies at that point was £4.5 million, contrasting with Office for National Statistics figures showing average annual earnings of £28,200 for all full-time employees in the UK.

Understandably, this riled a large portion of the public, particularly following almost a decade of austerity measures pushed through on the basis “we’re all in this together.” Following sustained public outcry, executive pay in the UK does seem to have been falling in response since then.

Last year, a survey from Deloitte found the average pay packet of a FTSE 100 CEO to have been £4 million. Now, the same analysis has estimated the annual salary of top bosses to have tumbled once again, hitting £3.4 million for the year ending February 2019. Deloitte’s report found that almost a third of FTSE 100 CEOs received no increase in base salary, with median salary increases remaining at around 2%. In 2018 bonus pay-outs remained similar to the previous year (median of 70% of maximum compared to 72% the previous year), although the range of pay-outs fell slightly.

Deloitte suggested that this fall is in part due to the impact of regulatory changes under the new UK Corporate Governance Code. Since the introduction of the 2014 reporting and voting regime, where shareholders elect whether to improve the salaries of their CEOs based on performance – there has been a stabilisation of remuneration levels and a significant shift in the simplification of pay packages. FTSE 100 companies are also moving to reduce executive pensions and implement requirements for executives to hold shares post-leaving.

Commenting on the findings, Stephen Cahill, Vice Chairman at Deloitte, said, “Since the introduction of the 2014 reporting and voting regime, we have seen remuneration levels stabilise and a significant shift in the simplification of pay packages… Without a doubt, executive pensions have been the hottest topic of 2019 and we expect this to continue, with a growing focus on incumbent executives receiving the highest pension rates.”

Cahill went on to warn that he believes this trend could compromise the UK’s ability to attract talent to CEO roles. He added that while £3.4 million is still extremely generous, the current uncertainty in the UK business environment means “shareholder pressure and regulatory controls should be balanced with the need to ensure that the UK is able to attract the calibre of talent that can deliver continued prosperity for businesses.”

Pay pressure

Beyond this regulatory emphasis, there is also likely to be an element of damage limitation at play. As firms contend with new generations of consumers who prioritise ethical spending, and shun companies who do not value ‘purpose’ alongside profit, being seen to rein in spending on executive pay while wages of hard working staff remains stagnant is invaluable PR.

Illustrating why this is important, pay scandals continue to abound at big firms. Standard Chartered recently endured a revolt over the contributions made to CEO Bill Winters pension, while Barclays, Standard Life Aberdeen, Ocado and Royal Mail have all caused also caused stirs with their policies on the matter. Elsewhere, over £100 million being handed to house builder Persimmon’s ex-CEO Jeff Fairburn continues to make waves.

While the £3.4 million does constitute some progress for firms looking to avoid such a public thrashing, however, it is still a massive multiple of what the standard UK employee is paid. The Office of National Statistics has released new figures showing the average salary of full-time workers sits at £35,423, meaning the average FTSE CEO earns in one year what majority of people would need to work for 96 years for.

That average becomes worse when also including part-time workers, seeing the average wage fall to £29,009 in that case, which would mean one worker would need to work 117 years to equal an annual CEO salary. With the rate at which the average pension age is set to rise in the UK, however, many staff may soon be presented with the opportunity to work do just that.