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Wednesday 2 October 2019

Executive pay

Mind the gap

Pay at the top has fallen, but it’s too soon to assume there’s been an outbreak of fairness

By Deborah Hargreaves and Chris Newell

Concerns about inequality and unfairness have driven much public disaffection with our current form of capitalism. Unless business is seen to be fair, the public will lose faith in the economic system and look for more radical alternatives.

The Edelman Trust barometer registers people losing faith in the system with seven in 10 Britons believing that life is unfair. High pay and bonuses for senior management are a persistent source of anger ands resentment while wages as a whole stagnate.

Against this background, pay for those at the top of the corporate ladder actually fell last year. FTSE 100 median remuneration for chief executives dropped by 13 per cent to £3.46m in 2018.

Does this mean that companies are introducing restraint and that executive pay will start to be brought under control? Here’s what the past decade looks like:

It is too soon to assume that packages will be reined in – chief executive pay fluctuates, largely depending on share pay-outs to top bosses.

Although overall pay was down last year, 43 companies in the FTSE 100 still increased their bosses’ packages and top-tier income remained 117 times higher than the average wage.

In the US, pay at the top slipped slightly too – but remains much higher than in the UK at $17m or 278 times the average. On both sides of the Atlantic, bosses’ pay increases have far outstripped those of the workforce and have been on a rising trend since the 1970s.

Top CEO pay is a symptom of rising inequality in developed countries where the top 1 per cent of earners and increasingly, the wealthiest 0.1 per cent, have secured an increasing share of national income while those at the bottom of the income scale have seen little change.

Chief executive pay is very dependent on the performance of shares they are awarded as part of their packages – so income has fluctuated with the fortunes of the stock market. Employee wages, however, are still lower in real terms than they were a decade ago in the UK and they are not much higher in the US.

Next year, we will know much more about the distribution of pay at Britain’s big companies when those with more than 250 employees are required to publish the ratio of top to average wages.

Some companies published their ratios ahead of time – 34 FTSE 100 firms this year. They extend from 813 times the average at cruise company, Carnival to 15 to 1 at insurer, Admiral. In the US, Gap had the biggest disparity where CEO Arthur Peck took home 3,566 times the median employee’s wages of $5,800 a year.

All photographs are of the National Theatre’s production of The Lehman Trilogy staring Ben Miles, Adam Godley and Sir Simon Russell Beale, the play is currently showing on Broadway in New York.

Photographs by Mark Douet/National Theatre