New research shows significant scope for post-pandemic earnings rethink

29 June 2020

  • £2,000 post-pandemic pay rise for lowest paid FTSE 350 employees could be funded by 3% pay reduction to highest paid employees.
  • At FTSE 100 companies receiving COVID-19 financial support, the median CEO/median employee ratio is 80: 1 and the median CEO/lower quartile employee ratio is 109: 1.
  • Median CEO/median employee pay ratio across the FTSE 350 is 55: 1 and the median CEO/lower quartile employee ratio is 78: 1.

New research by the High Pay Centre think tank funded by the Standard Life Foundation has found that rethinking pay within top companies could be used as a way to give a post-pandemic pay rise to the lowest paid workers including millions of key workers.

The research is based on new pay ratio disclosures in companies’ annual reports, requiring them to report their CEO’s pay relative to the top quarter, median and lower quarter pay of their UK employees. The High Pay Centre analysed annual reports published by the first 107 companies to comply with the new requirements in the first four months of this year.

The High Pay Centre calculated that reducing pay of employees at the upper quartile by 3% could fund a median pay rise of £2,000 for the lowest earning quartile of employees in the same companies. The report also notes that the potential for rethinking pay is likely to be much higher, because the disclosures show minimum pay levels for the upper quartile earners, and maximum pay for the lower quarter.

The need for such changes to pay is highlighted by figures showing the vast pay gaps between high and low earners at FTSE 350 companies. This includes 39 companies who are currently receiving state support through the furlough scheme and/or the Covid Corporate Financing Facility.

The research also found that:

  • The FTSE 100 median CEO/median employee ratio is 74: 1 and the median CEO/lower quartile employee is 109: 1. For the FTSE 350 median CEO/median employee ratio is 55:1 and the median CEO/lower quartile employee is 78: 1.
  • For the 11 FTSE 100 companies receiving state support via the furlough scheme or the Covid Corporate Financing Facility the median CEO/median worker ratio is 80: 1 and the median CEO/lower quartile ratio is 109: 1. For the 39 FTSE 350 companies the median CEO/median worker ratio is 60: 1 and the median CEO/lower quartile ratio is 78: 1.
  • The healthcare industry has the highest average CEO/median worker ratio (129: 1) followed by consumer services (92: 1) and consumer goods (73: 1).

The think tank cautioned that the real pay ratios were likely to be wider than those reported, because outsourced workers in low paid jobs are not included in the calculations. For example, Shell’s ratios are much lower than BP’s despite being an ostensibly similar organisation with a similarly high CEO pay award. This is because Shell franchises its petrol stations, meaning that low-paid petrol station staff who are not directly employed by the company are not included in its pay ratio calculations.

To compensate for this problem the High Pay Centre calculated an additional CEO to low-paid worker ratio by comparing CEO pay to an annualised equivalent of the national minimum wage, or the real living wage for companies that are accredited living wage employers.[1] The median CEO to low-paid worker ratio is 133:1 for the FTSE 350 and 253:1 for the FTSE 100..

Quotes

Luke Hildyard, Executive Direct of High Pay Centre“People increasingly recognise that we need an approach to pay in this country that rewards people more fairly. The new disclosures make it harder for big companies to argue that pay rises for their lowest-paid workers are unaffordable, given the potential to fund increases through slight re-balancing of pay awards from the highest earners to the lowest.

We hope that companies can improve transparency further by including outsourced workers in their pay ratio calculations and providing more detailed information on top earners beyond their CEO. A better understanding of pay inequality can help inform the debate about the kind of society we want to be as we ‘build back better’ post COVID19.”

Mubin Haq, CEO of Standard Life Foundation“The pay ratios data highlights the very wide variance amongst companies as to how they reward their employees. This ranges from the CEO of a FTSE 350 company earning 543 times what an employee at the lower quartile of their company earns, to just 8 times. Today’s report outlines a number of factors that might explain these differences and actions employers and investors can take.

The pandemic has highlighted that there are many workers who have been undervalued to date but who are essential and key to keeping our country running. These are the delivery workers, the supermarket staff, cleaners and many more. Analysis in the report indicates that small changes to pay and benefits at the top could result in some very tangible gains for those struggling to make ends meet”.


Download the report