Executive pay 180 times average – as wealth gap increase

A new report warns that the wealth gap between top bosses and everyone else has rapidly widened in the last three decades, with executives now earning nearly 180 times the average UK worker, and calls on the government to take action.

The report – Reform Agenda: How to make top pay fairer – from thinktank the High Pay Centre reveals that in the late 1990s executive pay was around 60 times higher than the average wage. This figure has since risen to 180, leading to the organisation calling on the government to take “radical action” to make the wage gap return to more proportionate levels.

According to the report, the average FTSE 100 chief executive earned £4.7 million last year, up from the £4.1 million recorded in 2012.

The High Pay Centre argues that the perception that executives reap the benefits when a company does well is damaging in a number of ways, including impacting on the trust of a brand and causing political and economic instability.

Deborah Hargreaves, director of the High Pay Centre, said, “It’s time to get serious about tackling the executive pay racket. The government’s tinkering won’t bring about a proper change in the UK’s pay culture. We need to build an economy where people are paid fair and sensible amounts of money for the work that they do and the incomes of the super-rich aren’t racing away from everybody else.”

The report also outlines a number of proposals for closing the salary gap. These include the government setting an ‘inequality target’ based on previous commitments to reduce child poverty and carbon emissions and compulsory profit sharing so all workers benefit when a company does well.

Another possibility put forward is a maximum pay ratio, for instance a ratio of 5:1 would mean that if the top earner were on a wage of £100,000 the lowest paid employee must earn at least £20,000. This suggestion has strong support among members of the public, with 78% backing the idea.

Hargreaves added, “A maximum pay ratio would recognise the important principle that all workers should share in a company’s success and that gaps between those at the top and low and middle earners cannot just get wider and wider. The idea must now be properly debated.”

Last year shareholders were given the power to vote down pay policy at a company’s annual general meeting. Whilst this has led to some revolts, every vote at a FTSE 100 company has seen the majority of shareholders support pay policy.

Photo: Mart1n via Freeimages

Further reading:

Executive pay as an issue of responsible business

Chief executives see 6% increase in remuneration package

Charities urged to disclose chief executive pay

RBS and WPP latest firms to face investor anger over executive pay

Clamping down on excessive executive pay