Median CEO pay falls, but is this the
full story?

When it comes to corporate governance, no topic is more contentious
than the pay of top CEOs.

The debate over whether companies pay their top executives excessively high salaries has been raging for years. Couple this with research from Edelman Trust showing that nearly two-thirds (62%) of the UK public want to see a redress of executive pay, it’s clearly an issue of high relevance.

So, for many, it was encouraging to see latest CIPD figures reveal the median pay of FTSE 100 CEOs actually fell 13% between 2017 and 2018 to £3.46m.

The CIPD’s report on FTSE 100 CEO pay also revealed that some CEOs had
taken a significant pay cut over the year.

Simon Peckham, CEO of Melrose Industries, came under scrutiny in 2017
when he took home a massive £42.76m. However, in 2018, his pay package dropped
by £41m to just over £1m.

But look behind the headline figures, and it becomes clear that we
still have some way to go before we can confidently say executive pay is
witnessing a sea change.

As the CIPD states, CEO pay has been volatile since 2010, so it’s hard
to tell if this is the start of a longer-term downward trend.

The fact remains, while the average pay of FTSE CEOs has gone down – it
is still 144 times higher than the UK median pay of £24,006 for all workers.

And, while Peckham did indeed receive a substantially lower income than
the previous year, this may have more to do with Melrose Industries’ five-year
long-term incentive plan (LTIP) policy, which sees him get high payouts some
years and £1m on average in other years.

The fact also remains that 43 companies increased CEO pay in 2018, with
a number of executives seeing their multi-million pound reward packages more
than double.

Jeff Fairburn, then CEO of Persimmon, retained his title as the highest
paid chief executive, receiving £38.97m in 2018 - down from £45.74m the
previous year. However, this is still 1,318 times the median salary of a
full-time UK worker. Fairburn stepped down as chief executive on 31 December
2018, not before receiving the full value of a 2012 LTIP.

The report also shows the gender pay gap needs to be tackled and
addressed sufficiently to bring more fairness to the workplace.

The total remuneration for women CEOs represented just 4.2% of total
FTSE 100 CEO remuneration, while their mean 2018 pay of £3.25m was
approximately two-thirds that of their male counterparts, the CIPD stated,
though this is a slight improvement from 2017 when it was just half that of
their male peers.

Nevertheless, GlaxoSmithKline's Emma Walmsley was the only female to
make the list of top 25 highest paid FTSE 100 CEOs, with pay of £5.8m.

But it’s not just CEO pay that has come under scrutiny. The report showed many other senior FTSE 100 executives have received large payouts, with Prudential paying an unnamed employee £16.6m in 2018 — more than double the pay earned by chief executive Mike Wells.

According to the CIPD, remuneration awarded to other executive senior
managers potentially creates a more significant cost than the amount spent on
FTSE 100 CEOs.

“It is important to understand the scale of this cost and discuss
whether it represents value for money in relation to the opportunity cost – for
example, increased pay for workers in the middle and at the bottom,” it stated.

The biggest concern the report highlights is the sheer lack of evidence
justifying executive pay packages. For example, the CIPD found almost no link
between employee headcount and single figure pay – which it said was
‘surprising’.

“The number of employees should be a good indicator for the size and
scale of the organisation, so if we accept that a larger company should have a
more highly paid CEO, this might also apply to size in terms of employee
numbers as well as market capitalisation.

“Instead, the lack of a discernible connection between pay and
headcount suggests that boards and companies as a whole see their CEO’s
responsibilities as being to preserve or expand market value, on behalf of
shareholders, rather than to serve the interests of their workers or society as
a whole,” the CIPD warned.