All in this together? Why it’s time for business leaders to read the room on executive pay

New research reveals that the median pay of CEOs in the FTSE 100 rose by 39% between 2020 and 2021, putting the spotlight on boardroom rewards once more  

As the cost-of-living-crisis forces millions of people in the UK to cut their spending drastically to make ends meet, a study by the High Pay Centre and the Trades Union Congress (TUC) has found that the median FTSE-100 chief executive took home £3.41m in 2021, compared with £2.46m the year before. That equates to an annual pay rise of 39%. 

Meanwhile, the average British worker has received a real-terms cut of 3%, according to the Office for National Statistics (ONS), as pay awards fail to match soaring inflation. Darren Morgan, director of economic statistics at the ONS, has described this as the fastest fall in the real value of pay in this country since comparable records began. 

Unsurprisingly, the pay gap between blue-chip bosses and the average employee widened significantly in 2021. The median CEO reward package in the FTSE 100 last year was 109 times larger than the median earnings of a full-time worker (£31,285), compared with a mere 79 times in 2020. The highest-paid chief executive in the FTSE 100, Endeavour Mining’s Sébastien de Montessus, received £16.85m.  

A potential tipping point 

The research has prompted the usual calls for the pay of business leaders to be capped or in some way linked to the earnings of the lowest-paid workers in their companies. They may well think that they can weather this storm of protest again, just as they always have, but things feel different this year. 

Much of the industrial action that thousands of workers have taken to improve their pay looks set to extend beyond the ‘summer of discontent’, so named by commentators likening the situation to the winter of discontent – a wave of strikes that brought down the Labour government during a period of high inflation in 1979. 

Railway workers have been picketing in pursuit of a sub-inflation pay rise of 7%. Network Rail’s chief executive, Andrew Haines, recently saw his salary increase by 8.5%, from £544,000 to £590,000. He earns about 20 times more than the average train guard. 

Journalists at Reach, which owns the Daily Mirror and Daily Star, are set to walk out in response to a proposed pay deal they claim is equivalent to a 7% cut in real terms. Meanwhile, the pay of its CEO, Jim Mullen, has risen by 700% (thanks partly to a long-term incentive plan, which won’t mature until 2024). Wildcat strikes are also on the rise as dissatisfaction spreads through the nation’s workplaces. 

The idea that bosses can deny their workers the pay rises they’re requesting amid the cost-of-living crisis while increasing their own to such an extent feels out of step with the mood of the nation. Widespread concern about inflation – particularly soaring energy prices – is shaking consumer confidence. When this falters, so does the economy. 

In touch with reality 

What, then, are the solutions? Proposals from the High Pay Centre and research organisation Autonomy to cap CEOs’ salaries at £200,000 seem unworkable. Such a move would prevent British businesses from competing for the best executive talent, harming them and the economy in the long run. 

But business leaders do need to show that they are listening. That is what PwC’s partners have done. The auditing giant’s leaders have pledged to take a pay cut to fund inflation-beating increases for lower-paid staff. 

Such sacrifices can pay off for the business in the long run. Rewarding employees and supporting them through tough economic times should make them less inclined to seek more lucrative work with a competitor, for instance. The cost of high staff turnover to a business, especially in the UK’s tight labour market, could end up exceeding that of granting a decent pay rise across the board. 

The argument that the money isn’t available for such pay increases is hard to justify, given that the FTSE 100 collectively spent £720m on paying 224 top executives last year, according to the High Pay Centre / TUC study. 

The research paints a picture of boardroom excess that jars with the stark financial situation that millions of ordinary people are facing. If the pay chasm continues to widen, the consensus might tip in favour of some form of regulation – something that business definitely doesn’t want. 

It’s time for more business leaders to acknowledge the situation and show some semblance of solidarity with the rank and file by reducing the gap. Otherwise, the pressure for outside intervention will only ramp up.