Credit: Allen Watkin/Wikipedia

How much should FTSE 100 bosses earn?

If you said less than 179 times the average UK salary, you've undershot the market. Happy Fat Cat Tuesday.

by Adam Gale
Last Updated: 25 Feb 2016

In case you were too busy reading your Karl Marx compendium to notice, today is Fat Cat Tuesday. It marks the point in the year when the average FTSE 100 boss (presumably a 50-something white man called John) earns the equivalent of the average UK worker’s annual salary, according to the High Pay Centre.

The average FTSE 100 chief executive’s compensation last year was £4.96m, which means they would earn the average UK salary of £27,645 by ‘some time late on Tuesday afternoon’. Not bad for a day and a half’s work.

The calculation was based on an equivalent hourly rate of £1,260, assuming FTSE 100 bosses work about 75 hours a week and take only 10 days’ holiday. For the year, it means the top bosses’ salaries were 179 times higher than the typical worker’s (down slightly, it seems, from the 183 times the High Pay Centre identified in August, not that this will be much consolation).  

Like most made up holidays, this was clearly designed to get people talking, and indeed it has already stoked the perennial spat about executive pay. While the High Pay Centre’s director (and MT regular) Stefan Stern says this shows ‘we are not all in this together, it seems – overpayment at the top is fuelling distrust of business’, the folk at the Adam Smith Institute begged to differ.

‘Can the High Pay Centre tell us how much CEOs are worth? If not, how can they say that they are overpaid?’ Asked its executive director Sam Bowman, who called the report ‘pub economics’. Given that a boss can make or break a company, the High Pay Centre’s complaints ‘only make sense if you assume firms don’t actually care about making money – which is to say, they don’t make sense at all’. Economists, like fat cats, have claws.

Bowman is of course largely right. Bosses aren’t fat cats treading on the backs of the workers so they can scratch their own. They are instrumental to a companys’ strategy and culture, and as such they are assets. Shareholders understand this and pay the market rate for them.   

The question really is whether they are paying the rates of a broken market, which they have no choice but to accept. If CEOs are indeed paid more than they are ‘worth’ across the board, then which firm would cut its salaries first? Which big business would seriously choose to save a few million by finding its executive team on the cheap?

Yet if executive pay were magically cut in half across all businesses, all other things being equal (to use an appropriate term for an argument between economists) it wouldn’t affect long term performance and would probably be better for social cohesion.

But of course all things are not equal. There is arguably a global market for executive talent at the top level, so government measures to limit pay (for instance giving shareholders a veto on excessive salaries or bonuses) risk an executive brain drain, denying the biggest UK-based companies the leadership they need to compete. 

Unfair or not, for this reason businesses will continue to cough up much higher salaries for chief executives than they do for other employees. Employees on renumeration boards may help, but other than a shock electoral victory for Jeremy Corbyn, the only thing likely to change that is if pay becomes so high that it becomes bad for the brand. Humble bragging that you only get £2m a year plus perks? Stranger things have happened. 


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