Let’s remove the smoke and mirrors around CEO pay

Jo Faragher

With so much focus on CEO performance and increased scrutiny on whether they behave right and ethically, it’s frustrating that pay at the top continues to be such a contentious issue.

Some new research from the CIPD suggests that the gap between CEO pay and that of employees is wider than ever, with the average FTSE 100 CEO earning around 187 times that of the average UK full time employee.

Granted, measures have been introduced to claw back bonuses where things have gone wrong and the top bosses are at fault, but it’s still difficult to justify such enormous pay multiples. Even as low-paid workers move onto the higher, national living wage next year, their ‘fat cat’ bosses will still be raking in many times more than that.

One of the most interesting findings of the research is that individuals with narcissistic tendencies are most likely to emerge as leaders – these personalities are also often the type who think they’re ‘worth it’ and able to negotiate a huge reward package.

Unfortunately, these high bidders can also be the least risk-averse, and history has shown how poorly thought-out decisions at the top can lead to major financial losses, or in the case of some of the US investment banks, ruining the company altogether.

Measures such as the upcoming gender pay gap reporting requirements mean companies’ wage bills will be under greater scrutiny, and this can only be a good thing. Seeing the differentials in black and white may spark some remuneration committees to redress the balance – not just between senior directors and junior employees but also men and women.

As Dr Almuth McDowall from Birkbeck University pointed out, significant changes need to be made. Not only by reducing unnecessarily outlandish rewards, but ensuring that companies can offer evidence as to why rewards are given, what for, and under what conditions.

In a word, reward needs to be more transparent. It’s one thing for the CEO to be paid 100 times more than you, but if there’s a breakdown of why he or she receives this remuneration and you make sense of that, you’re less likely to feel disenfranchised. Upholding the smoke and mirrors around top director pay is only going to uphold this unfortunate trend.