Friday 4 January 2019 is “Fat Cat” Friday. In just three working days, the UK’s top bosses make more than a typical full-time worker will earn in the entire year, according to calculations from independent think tank the High Pay Centre and the CIPD, the professional body for HR and people development.
The average (median) full-time worker in the UK earns a gross annual salary of £29,574. “Fat Cat” Friday recognises that in 2019 the average FTSE 100 CEO, on an average (median) pay packet of £3.9 million, only needs to work until 1pm on Friday 4 January 2019 to earn the same amount. The £3.9 million figure was calculated by the CIPD and the High Pay Centre in their 2018 analysis of top pay and it marks an 11% increase on the £3.5 million figure reported in their 2017 analysis. The pay increase means that FTSE 100 CEOs, working an average 12-hour day, will only need to work for 29 hours in 2019 to earn the average worker’s annual salary, two hours fewer than in 2018.
The CIPD and High Pay Centre are highlighting the problem of rising executive pay in a new report launched today. The report, RemCo reform: Governing successful organisations that benefit everyone, identifies the shortcomings of the remuneration committees (RemCos) charged with setting executive pay and calls for them to be significantly reformed. In particular, it highlights:
• the myth of ‘super talent’ as a factor that continues to drive excessive pay with one remuneration committee chair commenting: “It’s nuts… and nuts has become the benchmark”.
• how there needs to be much greater diversity among those responsible for setting CEO pay, both in terms of their ethnicity and gender, for example, but also their professional backgrounds and expertise in order to combat ‘group think’.
• how current pay mechanisms contribute to the problem of high pay. In response, the CIPD and High Pay Centre recommend replacing long-term incentive plans (LTIP’s) as the default model for executive remuneration with a less complex system based on a basic salary and a much smaller restricted share award. This would simplify the process of setting executive pay and ensure that pay is more closely aligned to executive performance.
The CIPD and High Pay Centre are calling for RemCos to ensure that CEO pay is aligned more appropriately to rewards across the wider workforce and that their contribution is measured on both financial and non-financial measures of performance. This should include measures such as employee well-being and investment in workforce training and development – all of which are crucial for good corporate governance.
Simplification of executive pay could also allow more time for the committees to focus on other issues that are critical to wider corporate governance and also interact with pay and reward, such as corporate culture, good people management and sustainable performance drivenby positive purpose. To reflect this wider remit, the CIPD and High Pay Centre suggest both refocusing and renaming remuneration committees so they become People and Culture Committees (PACCs).