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Pay rises for bosses as restraint holds back workers - report

Published 08/08/2016

A study of annual reports of FTSE100 companies showed the average pay package for a chief executive was 5.48 million pounds in 2015
A study of annual reports of FTSE100 companies showed the average pay package for a chief executive was 5.48 million pounds in 2015

Company bosses have received 10% pay rises as workers face continued restraint, leading to an "unhealthy and growing" gap in wages, a new report reveals.

A study of annual reports of FTSE100 companies showed the average pay package for a chief executive was £5.48 million in 2015, up from £4.96 million in 2014.

The High Pay Centre said its research also found that chief executives were paid 140 times more than their employees on average.

In contrast to the "generous" pay packages awarded to executives, only a quarter of FTSE100 firms are accredited by the Living Wage Foundation for paying the voluntary living wage to their employees.

Big pay remains a "boys club", with no women in the top 10 highest paid chief executives, said the report.

Only one company has an employee representative on the board, while none publishes details of the pay ratio between chief executives and other employees.

Stefan Stern, director of the High Pay Centre, said: "There is apparently no end yet in sight to the rise and rise of FTSE100 chief executive pay packages.

"In spite of the occasional flurry from more active shareholders, boards continue to award ever larger amounts of pay to their most senior executives.

"The High Pay Centre was delighted by Theresa May's recent intervention on this issue. There now seems to be political will and momentum behind attempts to reform top pay.

"In particular we support two of her main proposals - that companies should be obliged to publish the ratio between the pay of the chief executive and the average worker in the business, and that the voice of the ordinary employee must be heard in discussions over executive pay.

"Businesses could save themselves a lot of grief, and do something to restore their reputations, if they listened to workers first before awarding these bumper pay packages.

"The question the outside world keeps asking is 'How much?!' How much better to try and answer that question internally first with concerned yet supportive employees?"

Peter Cheese, chief executive of the Chartered Institute of Personnel and Development, said: "There is still a shocking disconnect between pay for those at the top and the rest of the workforce in large companies.

"Worse still, this gap is continuing to grow despite our latest data showing that it leads to a real sense of unfairness that has a clear impact on employee motivation.

"A recent CIPD study showed that six in 10 employees say that high levels of chief executive pay in the UK demotivates them at work.

"The message from employees is clear: 'The more you take, the less we'll give.' This kind of culture in the workplace is bad for both employers and employees."

The highest paid chief executive in 2015 was Sir Martin Sorrell, who received £70,416,000 as head of public relations firm WPP - up by £27 million from the previous year.

Berkeley Group's Tony Pidgley was paid £23,296,000 in 2015 - placing him second in a league of the highest paid chief executives.

BP's chief executive, Bob Dudley, was paid £13,296,000 in 2015 - an increase of £4 million compared with the previous year. He received £9,289,000 in 2014.

Rakesh Kapoor, chief executive of Reckitt Benckiser, received £23,190,000 in 2015. He was paid £11,237,000 in 2014.

However, the chief executive of Relix - an information and analytics company - saw a decline in pay between 2014 and 2015. Erik Engstrom was paid £10,869,000 in 2015 - around a £5 million drop from 2014, when he was paid £16,176,000.

Other high-earning chief executives in 2015 include Sky's Jeremy Darroch, who was paid £16,889,000; Shire's Flemming Ornskov, who was paid £14,638,000; and Prudential's Mike Wells, who was paid £10,031,000.

Lloyds Banking Group chief executive Antonio Horta Osorio received £8,773,000 in 2015.

Conor D'Arcy of the Resolution Foundation said: "The incoming Prime Minister has signalled that she's prepared to act to curb excessive pay at the top.

"But if the Government's aim to is to reduce the pay ratio between the super-rich and everyone else, it should focus too on the incomes of those on typical earnings.

"An industrial strategy, including a new focus on raising productivity in low pay but large employment sectors of the economy, should be at the heart of this approach."

Shadow business secretary Jon Trickett said: "Paying top executives 140 times the average pay of their employees makes no economic or moral sense.

"There is simply no excuse for the wealthiest people in this country to award themselves a 10% pay rise while the rest of the country saw their pay increase by just 2% last year.

"The Prime Minister has promised to get tough on corporate governance, but we have so far seen her silent as scandals at Sports Direct and BHS shock the nation.

"Only Labour has the political will to tackle unequal pay. That is why we are promising to introduce collective bargaining for all large employers and to give democratically elected workers' representatives a binding say on boardroom decisions.

"The Prime Minister has started making the right noises, but it is only political commitment backed up by radical action that will allow us to make our economy serve the interests of all stakeholders, rather than lining the pockets of a privileged few."

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