Investors have been warned to watch for executive remuneration packages that “chase the median” as FTSE 100 chief executive pay packages drop by almost a fifth in 2016 under political, shareholder and public pressure.
The average FTSE boss earned £4.5m last year, compared to £5.4m in 2015, according to a report released today from the Chartered Institute of Personnel and Development and the High Pay Centre.
Shareholder revolts at WPP and BP, which saw the pay of Martin Sorrell and Bob Dudley drop around third, contributed to the 17 per cent drop.
It would take the average UK worker, who earns £28,000 annually, 1,718 years to earn Sorrell’s £48.1m take-home pay from 2016.
The gender pay gap was also evident in the figures with the six female CEOs from the index averaging £2.6m in pay, almost half the pay packages of their male counterparts.
However, the report notes that while the 25 largest pay packages have dropped by 24 per cent to £9.4m in 2016, the 32 lowest paid CEOs in the FTSE 100 have seen an increase in their overall package.
High Pay Centre director Stefan Stern says “chasing the median” needs as much attention from the Government and investors as is given to earners at the top end of the scale, with bosses at the lower end of the league table “ratcheting up” their pay.
The median pay in 2016 was £3.5m, a drop from recent years and marginally higher than £3.4m in 2010.
CIPD chief executive Peter Cheese says he hopes the reversal in executive pay is the beginning of a long-term trend, rather than a short-term reaction to political pressure.
He says excessive executive pay is happening in the context of an overall reward system where average wages in the UK have been flat.
Cheese also notes that the gender pay disparity is an issue of fairness and something that needs to be addressed at all levels of the business.
High pay must be addressed as part of the much broader review of UK corporate governance, Cheese says.
“Rather than focusing predominantly on share price or short term profit, we need a much more balanced scorecard for performance that also takes account of other indicators of success such as investment in people, social responsibility and accountability, and long-term value creation.”
Business minister Margot James says executive pay has been addressed in the Government’s Corporate Governance Reform green paper to ensure remuneration is properly aligned with performance.
“This report shows encouraging signs that the UK’s largest firms are already making progress in this area and our responsible business reforms, which we will publish shortly, will help to enhance the public’s trust and confidence in big business.”
An Investment Association spokesperson says the report shows FTSE companies are listening to the demands of their shareholders and notes they have been calling for simpler pay structures and the publication of pay ratios.
“We have seen some companies working in the right direction this AGM season, with several FTSE 100 companies taking into account pay levels when setting their new pay policies.”