CEO pay declined during the pandemic but remains excessive
Executive pay declined during the pandemic, which led to a temporary fall in the pay ratio between the median CEO and the median employee in FTSE 350 companies from 53:1 in 2020 to 44:1 in 2021. However, recent disclosures suggest that the pay gap between CEOs and average workers is set to increase again in 2022 and beyond, with a median ratio of 63:1 among those companies that disclosed pay ratios in early 2022 (almost double the ratio of the same group of companies in the previous year). Pay ratios were widest in retail (117:1) and lowest in media (29:1) and financial services (30:1).
CEO pay has rebounded strongly post-pandemic, reflecting widening inequality
Total pay across the FTSE 100 rose from £2.46m in 2020 to £3.41m in 2021, and is now higher than before the pandemic. The median CEO to median employee pay ratio in this group increasing from 65:1 to 79:1. Excessive rewards for executives both reflect and exacerbate increasing levels of economic inequality in the UK, and directly contribute to the cost-of-living crisis by making it harder for employers to fund pay increases for lower earners while maintaining returns to shareholders.
Many high earners contribute little to the economy
Inherited wealth accounts for 28% of wealth in the UK, a proportion that is growing as wealth becomes more concentrated at the top. At the same time, a lot of wealth comes from high incomes. However, those people in the top 0.1% who do work often work for organisations that collect rent, interest, dividends, capital or speculative gains, rather than making a genuine contribution to the economy by creating wealth. This includes people working in finance, insurance and property; but companies in other sectors are also making increasing profits by ‘investing’ in securities (as opposed to making productive investments in new products, services, human capital, technology or infrastructure). And it is well documented that executive pay often bears little relation to success in the role (see the page on merit and reward).
Pay has been increasing faster for high earners than low earners
Pay growth in the finance and insurance sectors increased rapidly from late 2021. It was in line with average pay growth from 2014 to 2019, but by early 2022 average finance pay was 23% higher in real terms than in late 2019, compared to a 7% increase in all sectors. Because 44% of employees in the top 0.1% of earners are in the finance sector, this larger pay growth has led to increased pay inequality. High earners in all sectors have seen higher levels of pay growth than other workers in the last two years, whereas the period from 2014 to 2019 saw larger pay increases for low earners. [Update: A report from the Centre for Economics and Business Research in August 2022 found that bankers, financial professionals and other top earners had seen 10% pay rises in the previous three months, compared with 1% for those in low-paying jobs.]