The great pay divide: is it time to cap CEO salaries?

CEO salaries are increasingly outpacing median wage growth in the UK. In 2023, the average FTSE CEO in 2024 took home the average UK worker’s salary in just three days.

Now, a poll by the High Pay Centre has found that 55% of employees agree that chief executive salaries should be capped relative to low or middle earners, in order to close the widening pay gap between UK boards and employees. Only 15% objected to the idea.

The thinktank is now calling for UK bosses to be more transparent about pay amid concerns that income inequality is souring relationships between shop floor workers and executives.

How much more do CEOs earn?

In 2023, FTSE 100 CEO pay reached £4.19m, the highest level on record, and up from £4.1m in 2022. That means bosses at the UK’s most successful companies now earn around 120 times more than the median full-time worker.

As well as demanding a cap on CEO pay, the High Pay poll also found that the majority of respondents supported more transparency for all boardroom members. 70% of employees surveyed agreed that companies should publish information on staff making over £150,000. 

Analysis by Startups has found that five of the six top roles in FTSE 100 (such as CMOs, CPOs, and CFOs) earn C-Suite salaries over this amount per year, on average.

Most people in board roles do not work at FTSE 100 firms, and a pay cap would be unlikely to affect the majority of bosses. Office for National Statistics (ONS) data shows the average salary for a UK CEO is £97,083 per year, or three times more than the median worker.

Startup salaries are even lower. Data from the funding organisation SeedLegals has shown that founders only tend to start taking a salary when they’re raising £150,000 or more, at which point they will award themselves average annual earnings of £37,000. 

Christmas bonus

The High Pay survey comes weeks before the top earning CEOs are likely to see another big boost to their income slips, as the season for Christmas bonuses nears.

Rather than taking a salary, many employers pay themselves through alternate methods that are tied to the success of the company, such as dividends or bonus schemes. These are commonly rolled out at the end of the financial year or ahead of the holiday season.

Bonuses are still taxed and are also often awarded to the wider workforce. Despite falling profits at the bakery chain Greggs, CEO Roisin Currie this week refused to slash the bonus distributed to employees (currently 10% of profits) describing it as “absolutely sacred”.

However, bonus pay for those on the highest salary band at certain large corporations can be substantial, adding a zero to the end of some employees’ pay cheques.

Last December, Sainsbury’s food commercial director Rhian Bartlett was called out by MPs after they discovered that the CEO’s bonus of £4m had been 200 times workers pay.

What should the CEO pay cap be?

The High Pay Centre has not yet defined a fair pay ratio for CEOs and frontline workers. According to the Guardian, it will publish its “A Charter for Fair Pay” in full this week ahead of the government’s package of worker reforms dubbed the Employment Rights Bill.

Some forward-looking employers have already provided a baseline. John Lewis has previously capped the pay gap between chairs and staff at 75:1.

Yet this is still substantially higher than most experts recommend. Renowned management consultant, Peter F. Drucker has said that 20:1 is the ideal limit for managers “if they don’t want resentment and falling morale to hit their companies.”

Why should CEO pay be capped?

Large pay gaps between CEOs and staff can create feelings of resentment and unfairness. As evidence, look no further than the second richest-man in the world, Jeff Bezos. 

In the same week as the High Pay survey, thousands of Amazon workers have announced strike action during the site’s busiest shopping season, Black Friday weekend.

Coordinated by the Make Amazon Pay campaign, the action aims to force Amazon to pay staff fairly. Amanda Gearing, senior organiser at the UK-based GMB Union, said UK Amazon “represents everything that is broken about our economy.”

Capping CEO pay could potentially improve staff relationships by reducing income inequality, boosting morale, and fostering a stronger company culture.