FTSE CEO pay cuts amid COVID-19 will not solve disproportionate salaries

FTSE 100 chief executive officers (CEOs) who have made cuts to their salary in light of the COVID-19 pandemic will not put a stop to their enormous pay and have been described as “superficial or short term”.

According to a report by the CIPD and High Pay Centre (HPC), a think tank focused on pay at the top of the income scale, just over a third (36) of the FTSE 100 companies made any cuts to CEO salary due to the outbreak of COVID-19 and the economic downturn brought on by the pandemic.

The research discovered that 14 out of the 36 companies that cut CEO pay did so by 20 per cent with two companies stating they were deferring their CEO’s pay rise. Still, as the CEO’s salary is a small part of their earnings, this has not been seen as a big sacrifice to make.

Also, 11 firms reduced their CEO’s short-term incentive plans (STIPs) but no business announced any decrease in a CEO’s long-term incentive plan (LTIP).

The median pay for a FSTE CEO in the financial year ending in 2019 was £3.61 million, which is 119 times greater than the median pay of the average UK worker (£30,353). The highest-paid FSTE CEO, Tim Steiner of Ocado was paid £58.73 million in 2019.

The report also found that performance-related pay is “guaranteed” rather than based on the CEO’s ability to perform. It advised that executive pay bonuses should be felt by the wider workforce as well. It also details how the CEO’s seem to be getting a large amount of credit for the company doing well when realistically this is more linked to the staff’s performance and economic factors.

Peter Cheese, chief executive of the CIPD, said:

Pay among the FTSE 100 will probably fall next year, but this is more likely to be due to wider economic circumstances rather than a fundamental change in approach to executive pay.

Too big a share of CEO payments depends on the fluctuating fortunes of the stock market and not enough on whether they are a responsible custodian of the business for all stakeholders, including, of course, the workers who drive long-term value.

Luke Hildyard, director of the High Pay Centre, said:

Very high CEO pay undermines the spirit of solidarity that many companies are trying to project as they battle against the impact of the coronavirus.

More pragmatically, multi-million pound pay awards worth over a hundred times the salary of a typical worker seems like an unnecessary extravagance during a period of such economic uncertainty.

If we want to protect as many jobs as possible and give the lower paid workers who have got the country through this crisis the pay rise they deserve, we will need to re-think the balance of pay between those at the top and everybody else.