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FTSE 100 CEO salaries, can they be controlled?

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Following the High Pay Centre’s annual FTSE 100 CEO pay survey released this morning, Simon Richardson, Senior Lecturer in Human Resource Management at Westminster Business School comments on whether wavering government interest in FTSE 100 CEO pay packages will result in executive salaries spiralling out of control again in 2018:

“The High Pay Centre’s annual FTSE 100 CEO pay survey released this morning shows average FTSE 100 CEO Pay has dropped by 17percent in the past year from an average pay packet of £5.4 million in 2015 to £4.5 million in 2016, reducing the multiple of FTSE 100 CEO pay packages from 148 to 129 times the average salary of one of their workers. These figures have provided a welcome reduction to single figure increases in FTSE 100 CEO pay resulting from a triple lock of press interest, shareholder opposition and public scrutiny.  Against the backdrop of the average UK salary only increasing by 2percent this year and the ongoing debate over the 1percent cap on public pay, the need to balance the high and low pay ratio is likely to continue to be a key political issue.

“Evidence that the government’s Green Paper has finally brought about a sudden halt to the apparently unstoppable increase in executive pay from £1 million in 1998 to £5 million in 2016 is therefore compelling. However, the reality is that the proposed rules to provide mechanisms that will prevent excessive executive pay have not been included in the Queen’s Speech.  This indicates that the Conservative government does not intend to implement any of the proposed new rules, including the binding annual majority shareholder vote on executive pay.

“So, does this mean that the restraints imposed by FTSE100 companies in 2017 will be abandoned in 2018 or will the advisory vote continue to attract sufficient adverse publicity to continue the rein in inappropriate executive pay packages without the need for further legislation? Or will the focus of attention now fall on the Labour Party’s intended goal of applying a CEO to average company worker pay ratio of 20:1 for any company quoting for public contracts? With the average FTSE100 CEO to average worker pay ratio of 130:1 in 2015 applying to a number of companies currently involved in government contracts, it will be interesting to see if this will be the new soft legislation which keeps executive pay under control.”