The widening pay gulf between employees and chief executives in Britain has “reached a crisis point” and must be tackled, the professional body for human resources has warned.
The Chartered Institute of Personnel and Development, which has about 140,000 members in the HR profession, said the high level of chief executive pay was angering and demotivating the rest of the workforce.
Average pay growth in the UK has been anaemic for six years and remains lower in real terms than before the financial crisis.
“It’s time to fundamentally rethink CEO pay,” said Charles Cotton, CIPD’s reward adviser. “The growing disparity between pay at the high and lower ends of the pay scale for today’s workforce is leading to a real sense of unfairness which is impacting on employees’ motivation at work.”
The CIPD recommended that the government should require all publicly listed companies to publish the pay ratio between the chief executive and the pay of average full-time employees.
Chief executives of Britain’s top 100 listed companies earned 183 times the salaries of the average UK worker last year, up from about 47 times in 1998, according to the High Pay Centre pressure group. It says the average pay for a FTSE 100 chief executive rose to £4.96m in 2014, up from £4.12m in 2010.
The CIPD surveyed 1,000 people and found that 59 per cent said the level of chief executive pay demotivated them at work. About 45 per cent believed their own chief executives’ pay was too high, while 30 per cent did not know and 4 per cent thought it was too low.
“The message from employees to CEOs is clear: ‘The more you take, the less we’ll give,’ ” said Mr Cotton.
“At a time when the average employee has seen their salary increase by just a few percentage points over the last several years, we need to take a serious look at the issue of top executive reward.”
High corporate pay has been a political flashpoint since the 2007-8 crisis, and legislation has been introduced in the UK to increase transparency on executive salaries in large companies.
Under rules put in place by the coalition government in 2013, large companies are required to publish “single figure” pay numbers for their chief executives, as well as historical comparisons. Shareholders also now have a binding vote on future pay policy at least every three years.
There is some evidence that these measures have succeeded in strengthening the link between pay and performance. Recent research from PwC, the accountancy firm, found that the correlation between payouts and performance grew more pronounced in 2013 and 2014, when the disclosure requirements came into force.
The link was strongest at the companies that were most transparent. However, the CIPD said more action was necessary.
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