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A new report highlights ways to combat the big divide between executive pay and wages earned by ordinary workers.
The UK’s top bosses have already made more in the first three working days of January 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 Chartered Institute of Personnel and Development.
The average (median) full-time worker in the UK earns a gross annual salary of £29,574. The HPC and CIPD calculate that in 2019 the average FTSE 100 CEO, on an average (median) pay packet of £3.9 million, only needs to work until 1pm today to earn the same amount. They add that the£3.9m represents an 11% increase on the £3.5 million figure reported in their 2017 analysis. They say that 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, RemCo reform: Governing successful organisations that benefit everyone. It calls for reform of the remuneration committees (RemCos) charged with setting executive pay. It highlights how current pay mechanisms contribute to the problem of high pay, what it calls the myth of ‘super talent’ as a factor that continues to drive excessive pay and says 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’.
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. They say 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, including measures such as employee well-being and investment in workforce training and development.
It adds that 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 driven by 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).