Fat Cat Thursday spotlights "grossly excessive" exec pay

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Continued government focus, shareholder and RemCo pressure, and better succession planning all cited as potential solutions

The UK’s top bosses will have made more money in the first three working days of January than the typical UK full-time worker earns in an entire year, according to High Pay Centre and CIPD calculations.

The figures show that the average FTSE 100 CEO will today (Thursday 4 January) pass the median UK gross annual salary of £28,758 for full-time employees, making this 2018’s ‘Fat Cat' Thursday.

Last year ‘Fat Cat’ day came on the first Wednesday of 2017, two working days into January. Today’s figures therefore reveal a slight year-on-year improvement in pay equality.

The CIPD and the High Pay Centre’s calculations show that the mean FTSE 100 CEO pay packet has fallen by a fifth, down from £5.4 million to £4.5 million. FTSE 100 CEO median pay also fell to £3.45 million in 2016 (down from £3.97 million in 2015).

However, despite this year-on-year reduction in total pay among FTSE 100 bosses, the ratio of CEO pay to that of the average full-time worker stands at 120:1.

Peter Cheese, chief executive of the CIPD, attributed this fall to increased scrutiny on CEO pay packets and urged that this momentum be maintained. “The drop in pay in the last year is welcome, although relatively marginal, and will have largely been driven by the growing public and shareholder concerns and the prime minister’s stronger focus on boardroom excess and plans to reform corporate governance,” he said.

“To ensure this year’s fall in CEO remuneration isn’t just a blip on the consistently upward trend of recent years, it’s crucial that the government keeps high pay and corporate governance reform high on its agenda. We also need businesses, shareholders and remuneration committees to do their part and challenge excessive pay, to understand pay and reward for top executives in the context of the whole organisation, and look at how pay is linked to driving sustainable performance.”

Fat Cat Thursday closely follows proposals by the Financial Reporting Council (FRC) to revise the corporate governance code to encourage companies to more carefully consider executive pay. The FRC recommended that duties of directors who sit on RemCos be widened so that they exercise greater discretion over executive pay awards, and to oversee pay and incentives across the wider workforce.

The FRC consultation also proposed that executives be required to hold on to bonuses paid as shares for at least five years. It followed the government’s Corporate Governance Reform whitepaper, which stated that all listed companies will have to publish pay ratios between chief executives and their average UK worker.

Commenting on this year’s Fat Cat Thursday, director of the High Pay Centre Stefan Stern said: “While it was encouraging to see a tiny amount of restraint on pay at the top of some FTSE 100 companies last year, there are still grossly excessive and unjustifiable gaps between the top and the rest of the workforce.

"Publishing pay ratios will force boards to acknowledge these gaps. We look forward to working with business and government to make this new disclosure requirement work as effectively as possible.”

Fat Cat Thursday follows research by consultancy Pearl Meyer which found that strong succession planning is key to keeping executive pay in check. Its most recent UK CEO Value Index data revealed that CEOs who have been promoted from within the organisation are paid 20% less than those hired from outside and add 6% more value.

The data revealed that this was a tenet many FTSE 100 companies were already observing, with 70% of new CEO appointments in the FTSE 100 in the last five years promoted from within the business.

Speaking on Radio 4’s Today programme, managing director of Pearl Meyer Simon Patterson said: “Our suggestion is that RemCos would be better putting more emphasis on succession planning and actually developing a wider pool of talent. I’d also add into the mix younger talent they haven’t thought of.”

Patterson said he didn’t think government regulation alone could recalibrate executive pay. “It’s actually very likely the regulation is not going to solve the problem,” he said. “What it will do is freeze where we are; and where we are is too high.”

He added that in his opinion the solution also doesn't involve getting rid of long-term incentive plans (LTIPs). “It would be a huge mistake I think to get rid of LTIPs,” he said. “What’s happened is the design of the programmes has become very boring; they’ve become very similar… I think more creativity around ensuring LTIPs are based on the performance everyone wants is more important.”

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