Pay gap between top bosses and workers branded 'shocking' by CIPD

The average pay ratio between FTSE 100 CEOs and their workers is now 129:1.

Just two and a half days into the New Year, top bosses in the UK have already earned more than the average worker does all year, the High Pay Centre has revealed.

The think tank’s figures show that the median salary of chief executives of FTSE 100 companies, which in 2015 was £3.97 million, will exceed the median employee’s wage of £28,200 by midday on the first Wednesday of 2017.

The High Pay Centre’s calculation assumes that top executives work 12 hours per day, which includes most weekends, and that they take less than 10 days of holiday each year. This would mean that their equivalent rate of pay is £1,000 per hour compared with the ‘national living wage’ for over 25 year olds of £7.20 per hour.

The Centre’s director Stefan Stern said: “’Fat Cat Wednesday’ is an important reminder of the continuing problem of the unfair pay gap in the UK. We hope the government will recognise that further reform to pay practices are needed if this gap is to be closed.”

As a result, he added, this “will be the main point in our submission to the business department in its current consultation over corporate governance reform. Effective representation for ordinary workers on the company renumeration committees that set executive pay, and publication of the pay ratio between the highest and average earner within a company, would bring a greater sense of proportion to the setting of top pay”.

Prime Minister Theresa May has said that tackling corporate excess is a priority for her government. It is currently considering whether to force companies to introduce pay ratios, but has already U-turned on employee representation on renumeration committees.

The average pay ratio between FTSE 100 CEOs and their workers in 2015 was 129:1, with the huge increases in top-level renumeration over recent years being attributable to performance-related pay awards – even though the actual link between pay and performance has been negligible, according to the Lancaster University Management School.

The Chartered Institute of Personnel and Development (CIPD) branded the current pay gap as “shocking”. Ben Willmott, head of public policy, also warned that the situation was likely to get worse before it gets better due to higher expected inflation rates during 2017, which means that many frontline workers are likely to face a pay squeeze.

“This disconnect demotivates staff, with a recent CIPD study showing that six in 10 employees identify CEO pay as an issue that demotivates them at work,” he said. “The message from the workforce is clear: ‘the more you take, the less we’ll give’.”

As a result, business leaders needed to ensure there was a clearer link between overall top rates of pay, organisational performance and the rewards of the wider workforce or “risk reducing employee engagement and productivity at work”.