FTSE100 Executives already earned more than average worker’s salary

The High Pay Centre has claimed by Tuesday 5th January, top executives had already earned more than the average worker would in a year. The think tank has released the figures to highlight the pay gap. The research suggests that the average FTSE 100 chief executive is paid £4.96m, which is approximately 180 times more than the average salary.

The estimates are based on chief executives working 12-hour days and only taking a few days of holiday, which gives them an average hourly pay of £1,260 an hour. Using these figures, they would only need to work 22 hours to reach the average median full-time salary.

However the Adam Smith Institute has criticised these figures as ‘pub economics’. The Institute’s executive director has said ‘the complaints are not valid’ until the High Pay Centre finds a more accurate way of calculating the value of executives to firms. Adding there seems to be little consideration for the level of responsibility required of executive positions.

The public perception of executive pay continues to be that it is considerably higher than necessary. Last month, the Chartered Institute of Personnel and Development (CIPD) published a report showing that more than half of UK employees think high executive pay demotivates the individuals and is bad for the reputation of UK firms.

Often the rates of pay are justified by firms claiming they need to pay a competitive rate to attract the best individuals. FTSE100 companies often benchmark the basic salary of their chief executives against other executives within the same industry. Executives’ basic salaries can range between £500,000 and £1.5m. Often salaries can be elevated if there is only a handful of people perceived as qualified to do a job.

There are calls for the alignment of directors’ and shareholders’ interests, yet critics are unsure whether this would work in practice. The idea that you link pay and bonuses to the company’s share price should encourage the executives to work harder, yet if it is not their money being risked, it is only a one-way bet.

Chief executives of publicly-listed companies now face more scrutiny as they are obliged to publish a single remuneration figure for the chief executive in their annual reports. This means that a shareholder should be able to review a company’s annual report and see the CEO’s basic salary, cash bonus, pension and shares. Shareholders will also have the power to vote down the pay packages of executives. Although some have commented the success has been hit and miss.

Notably, some have suggested that the CEO should decide; whilst some executives might continue to take large salaries, there are some who act generously. Dan Price, a US technology entrepreneur, cut his $1.1m salary by 90% to help increase the average salary of his employees to $70,000. FTSE100 executives, however, are not expected to make moves this dramatic any time soon.