Data from the Chartered Institute of Personnel and Development shows that FTSE 100 chief executives officers (CEOs) who started work on 2 January have already earned the average annual wage by 6 January.
With the average wage being approximately £29,559, these figures demonstrate that a significant gap remains between the highest earners and averageemployees in these organisations. Taking the average annual earnings of these CEOs into account, which for 2018 was £3.46m, they earn approximately 117 times more than their average employees, taking home over £900 per hour.
Speaking on these figures, Andrea Leadsom, Business Secretary, outlines that they are ‘concerning’ but that the new requirement on certain organisations to report CEO pay ratios would help to ‘increase transparency around how directors meet their responsibilities’. From 1 January 2020, quoted organisations with more than 250 UK employees are legally required to disclose their CEO pay ratios. Briefly, this means that eligible organisations will need to specify their CEO’s most recent total remuneration figure as a ratio against the 25th, 50th and 75th percentiles of full-time equivalent remuneration of employees.
Although executive pay ratio reporting does not all apply to all organisations, these figures do indicate the potential for reputational damage if a significant discrepancy is displayed between CEO and employee earnings. This could easily deter both potential future candidates and clients from taking interest in the organisation, something that could deprive it of key opportunities for further development.
Provided they comply with the latest minimum wage rates, which are set to increase in April, organisations are generally free to pay their staff how they please. Generally, it is to be expected that management will earn more money than average employees. After all, their roles will involve increased levels of responsibility, asking for prior experience and skills that many individuals in the company will likely not yet have achieved. Having said that, organisations should also consider the potential for employee unrest if it is felt remuneration is unfair.
Employees who do not feel like they are adequately paid are all the more likely to be become demotivated, disillusioned and, ultimately, consider leaving their job for alternative employment. This could also lead to ongoing issues between management and their staff, particularly if director salaries continue to go up whilst employee wages remain stagnant.