Research shows bosses pocket 183 times what lowest paid employee earns
Chief executive pay is out of control, and has ceased to bare any relationship to performance, according to a CIPD study which suggests that a dramatic rethink is needed.
With CEOs now pocketing an average of 183 times what the lowest paid worker gets, the report –‘The View From Below: What employees really think about their CEO’s pay packet’– reveals seething discontent with the status quo.
It found that 71 per cent believe CEO pay is either ‘too’ or ‘far too’ high, with 59 per cent reporting that it directly demotivates them. Just 4 per cent of employees think the boss’ reward package is too low.
Although executive pay has long been a source of debate, the report reveals how the multiplier between the best and worst paid in organisations has shot up in recent years. Today’s 183x multiplier compares to the multiplier of ‘just’ 47x in 1998. According to the CIPD, more than half (55 per cent) of employees now claim the high level of CEO pay in the UK is not just unfair, but it’s bad for their firm’s reputation.
Charles Cotton, CIPD reward adviser, said: “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 message from employees to CEOs is clear: ‘the more you take, the less we’ll give’.”
TUC general secretary Frances O’Grady echoed these sentiments, and called for businesses to tackle their corporate governance.
“Soar-away executive pay is bad for business,” she said. “Companies should be looking to reduce the pay gap between top execs and the rest of their workforces as a matter of urgency. This will boost staff productivity and ensure that workers get a fairer share of the rewards.”
Cotton argued that for the situation to change, HR professionals need to take the lead with a “fundamental rethink on chief executive pay”. He called for employers to create systems that are linked to both financial and non-financial performance measures.
“These should include how their leadership impacts on critical outcomes such as employee wellbeing and engagement, accountability for culture and behaviour, and workforce development,” Cotton said.
Stefan Stern, director of the High Pay Centre, said: "Although CEOs are employees too, excessive pay packages mark them out almost as a different species. If we are really 'all in this together', the gap between the top and the rest of the workforce should not be so high.”
A second CIPD study - The power and pitfalls of executive reward: A behavioural perspective – outlined why CEO pay has been allowed to grow seemingly without constraint. It identified a lack of pay transparency, overly complex measures of performance, and a one-size-fits-all approach to top pay. It recommended HR directors tackle all of these areas.
Cotton said: “The CIPD recommends organisations increase their focus on ensuring CEOs bring a balanced leadership style, appropriate to the culture and context of the organisation.”
And Stern added: “Outlandish pay sustains the myth that a single, heroic individual is somehow running a big business on his or her own. That's simply untrue. Leadership matters, and good leaders should be well rewarded. But the workforce does the work."