The upward momentum of chief executive remuneration in the UK’s largest organisations has reached a crisis point, according to a CIPD survey of employee views. High levels of executive pay and reward does not clearly correlate to personal performance or business outcomes and ‘this is having a significant impact on the motivation levels of the wider workforce’, the report argues.
Data, from a YouGov survey commissioned by the CIPD, of exploring employees' views on executive pay found:
Charles Cotton, CIPD reward adviser, commented:
‘The growing disparity between pay at the higher and lower ends of the pay scale for today’s workforce is leading to a real sense of unfairness which is impacting on employees’ motivation at work. The message from employees to CEOs is clear: “the more you take, the less we’ll give” . . . It’s crucial that chief executive reward packages are simpler and more clearly aligned to both financial and non-financial performance measures.'
A separate report on the powers and pitfalls of executive reward, published by the CIPD, explores some of the factors contributing to the widening gap between senior and lower level pay, including the lack of transparency in the ratio between the two groups. The authors of the report – Almuth McDowall, Birkbeck University of London; Zara Whysall, Lane4; Paul Hajduk, Pay Data; and Duncan Jackson, Birkbeck University of London – recommend that the government requires all publicly-listed companies to publish the pay ratio between rates of pay for the chief executive and the average full-time employee.
They also suggest that variable reward for senior people is overly complex and disproportionately focused on financial measures rather than being linked to other outcomes of interest to shareholders.
The authors conclude:
‘Looking at the evidence, there is a strong case for employee representatives to be appointed to remuneration committees, as advocated by the High Pay Centre, to bring fresh perspective to discussions about executive pay levels and bring a further focus on ensuring rewards are proportionate and linked to clear and measurable performance measures beyond simply the short term . . . such representation is common in other European countries at board level. In addition, organisations must also be encouraged to report more clearly on how reward decisions are being made, and whether reward consultants have any other links with the organisation.’