Cuts to executive pay during the pandemic saw the pay ratio between average CEOs and employees narrow dramatically, however there are indications that pay gaps will widen again in 2022.
The High Pay Centre’s analysis of pay disclosures made by FTSE 350 companies finds that the median CEO/median employee pay ratio was 44:1 in 2020/2021, down from 53:1 in 2019/2020. The median CEO/lower quartile employee pay ratio also fell from 71:1 to 59:1.
However, across the 69 companies that disclosed their pay ratios in the first quarter of 2022, the median CEO/median employee ratio had almost doubled (63:1), compared to the ratio published by the same group of companies a year earlier (34:1).
Companies listed on premium stock markets with over 250 UK employees must publish pay ratios, showing
the relationship of their CEO’s pay to other employees.
Luke Hildyard, director of the High Pay Centre, said: “Our report indicates that companies and their stakeholders showed some sensitivity to the need to treat workers fairly and reduce vast pay inequalities during the pandemic.
“However, as the Covid 19 emergency hopefully reduces, it would be a shame if the spirit of solidarity it generated fades away as well.
“Major employers have a key role to play balancing their pay awards so that high, middle and low earners are all paid fairly and proportionately.”
The report says that it is essential that pay ratio disclosures are not simply analysed, but are used to bring about fairer pay practices and help raise pay for low and middle earners in the UK.
It makes several recommendations for better reporting, including:
- Providing more granular information on the earnings of those between the upper quartile threshold and the CEO, for example reporting on the pay awards of those earning over £150k or the top 1% of employees
- Including outsourced UK workers in pay ratio calculations
- Setting higher standards and clearer expectations of narrative reporting around the ratios, which could enable a
better understanding of the link between pay distribution and business strategy
- Providing information on pay ratios directly to workers, as many are unlikely to read through company annual reports.
The report also proposes some wider policy changes, including:
- Allowing trade unions to access workplaces to inform workers of the benefits of collective bargaining
- Establishing sectoral governance bodies to monitor fair pay
- Legislating for worker representation on company boards
- Requiring companies to introduce all-employee profit sharing or share ownership schemes, as one of the reasons why some pay ratios are so wide is that CEOs receive large share-based payments
- Amending company law to give the interests of all stakeholders equal importance, rather than elevating shareholder interests above those of others
- Giving shareholders binding votes on directors’ remuneration reports
- Requiring firms to include guidance on potential future pay ratio sizes in their remuneration reports.
Recent analysis by the High Pay Centre, the Open University, the University of Nottingham and Western University in Canada found that companies with high levels of female representation on boards were more likely to cut executive pay during Covid-19. Less than half of the firms looked at for its report in April took at least one measure to reduce executive pay.
The think-tank also found that six in 10 people think top UK company CEOs should be paid no more than 10 times the salary of their typical employee.