United Kingdom: HPC/CIPD Annual FTSE 100 CEO pay review

Small fall in 2019 median CEO pay, but excessive pay culture remains and the “short-term” measures taken by companies in the wake of the COVID-19 pandemic don't go far enough

In brief

The CIPD and High Pay Centre (HPC) have published their report on FTSE 100 CEO pay in 2019 and during the COVID-19 pandemic. Their report is critical of executive pay practices and could be indicative of the types of arguments that will be raised against companies in the 2021 reporting season.

The report argues that very high CEO pay risks “undermining the spirit of solidarity” which many companies are trying to project during the COVID-19 pandemic.

The report found that the “mainly superficial” and “short-term” measures that the majority of companies have taken to cut CEO pay during the COVID-19 pandemic won’t address excessive pay amongst FTSE 100 companies.
 


Contents

COVID-19

  • The report focused on 36 companies that had taken measures to cut executive pay during the pandemic. 
  • Although most of the companies reviewed used a combination of measures to cut pay, the most common measure (taken by 14 companies) has been to cut executive salaries by 20%.
  • 11 companies have cancelled their short-term incentive plans for their CEO and two companies have deferred salary increases. 
  • None of the 36 companies have chosen to reduce their CEO’s long-term incentive plan (LTIP) (which typically makes up about half of the CEO’s total pay package).
  • The report urges companies to reconsider their CEO pay packages and to consider whether the existing remuneration structures “reflect good business sense” given the uncertainty caused by the COVID-19 pandemic. 
  • In the view of the CIPD and HPC, the relatively small cuts and “superficial” measures taken by companies suggests that executive pay reform has not yet been considered by companies.   

2019 findings

  • Although the median FTSE 100 pay packages fell by 0.5% between 2018 and 2019, the median remuneration package is still 119 times that of the average UK full-time worker. 
  • Pay cuts taken to reflect the COVID-19 pandemic may result in more substantial cuts in 2020. However, there is no evidence to suggest that such policies will have any lasting impact. 
  • Most companies continue to pay out performance-related pay as a matter of course. 

In relation to performance-related pay, the HPC and CIPD argue that guaranteed performance-related pay devalues the reward and places disproportionate weight on individual performance. 

The HPC and CIPD urge companies to more closely align executive pay with wider workforce pay and suggest that executives should be incentivised in a more "sustainable" way. 


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