A crisis point has been reached in executive pay with workers demotivated by chief executives’ soaraway pay deals, according to a leading body that represents the human resources sector, reports The Guardian.
Six in 10 employees told a survey that the high level of chief executive pay discouraged them in the workplace, and more than half of those surveyed felt that high level of pay was bad for a firm’s reputation.
The survey by the Chartered Institute of Personnel and Development (CIPD), which represents human resources professionals, found that 70 per cent of employees felt chief executive pay was too high, but that proportion fell to 44 per cent when asked about their own chief executive – due, in part, to ignorance about their own organisation.
The CIPD built on research by the High Pay Centre showing that chief executives were paid 183 times more than the average employee, compared with 47 times in 1998.
“The growing disparity between pay at the high 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,” said Charles Cotton, CIPD’s reward adviser.
“The message from employees to CEOs is clear: ‘the more you take, the less we’ll give’. At a time when the average employee has seen their salary increase by just a few percentage points over the last several years, we need to take a serious look at the issue of top executive reward.”
The gap between pay at the top and those in the workforce has been highlighted in the past, including by the London mayor, Boris Johnson, who told the Conservative party conference in October that social ties would fray if the economic gap between citizens grew too big.
He also appeared to target Sir Martin Sorrell, chief executive of the advertising group WPP, saying: “There are some gigantic self-appointed sequoias that pay themselves 780 times the salary of the little shrublets they employ.”
The CIPD said companies should publish their pay gap – US firms are required to do so from 2017 – and also allow employees to sit on their remuneration committees.
The view was echoed by the TUC general secretary Frances O’Grady, who said having employees on company boards would “inject a much-needed dose of reality into boardrooms and put the brakes” on big pay deals.
“Soaraway executive pay is bad for business,” said O’Grady. “Companies should be looking to reduce the pay gap between top execs and the rest of their workforces as a matter of urgency. This will boost staff productivity and ensure that workers get a fairer share of the rewards.”
The report examined how company bosses managed to keep their pay deals so high and pointed to an element of “rigging” by those executives who are able to highlight areas in which they perform.
The report added: “Research shows that individuals high in narcissism are not only more likely to emerge as leaders, but among CEOs with longer tenure, more narcissistic CEOs receive bigger compensation packages, have higher shareholders, with a larger discrepancy between their total compensation and other members of their executive team.”
The CIPD report concluded that “CEO reward practice had reached crisis point”.
There is little evidence about how chief executives are selected and more is needed, the report said. “This should curb the myth of the heroic CEO and lead to greater accountability across the board, which should in turn equate to smaller pay gaps,” it added.
