Bosses’ rewards widen long-term gap

 

Company Directors (including Chief Executives) have enjoyed pay increases almost twice the size of the average UK executive over the last 12 months, according to new salary data published today by the Chartered Management Institute (CMI) and XpertHR. The differences are largely due to sharp percentage increases in bonus payments at top levels, compared with previous years. The gap widens further still for Chief Executives, whose pay rose five times as much as that of the average executive – leaving CEOs earning 30% more than forecast on the basis of salaries recorded when the National Management Salary Survey first took place 40 years ago.

The salary data, taken from more than 43,000 executives in 180 UK organisations, shows that basic salaries plus bonuses rose just 3.0% on average over the last year, in line with a 3.0% increase the year before and trailing behind retail price inflation. In contrast, while the average basic salary for all Directors increased by just 2.7%, the figure jumps to 5.3% over the past year when bonus payments are accounted for. This compares with a much smaller 2.1% salary plus bonus rise for Directors between 2011 and 2012. Similarly, Chief Executive basic salaries increased by just 1.8%, but when bonuses are added in the percentage increase leaps to 15.8%. In stark comparison, the figures released this time last year showed a salary plus bonus decrease for Chief Executives of 0.5%.

Ann Francke, Chief Executive of CMI, says:“It’s hard to believe that Company Directors and CEOs have seen such a big leap in bonus payments when the UK’s economic performance remains so sluggish. If organisations aren’t performing, leaders shouldn’t get these bumper rewards, especially when pay increases for all other management levels have been so much smaller.”

The National Management Salary Survey marks its 40thanniversary this year with a look back to data from the first edition in 1973, and reveals how much the gap between salaries of those at the top and executives lower down the ranks has widened over the last four decades. Chief Executives are earning 30% more now than would be expected from the 1973 data, while middle managers now earn 28% less than the 1973 figures predict. In 1973, average salaries stood at £3,855 for a middle manager and £10,600 for a Chief Executive, compared to £43,456 and £215,879 respectively today.

Ann Francke continues:“A loaf of bread that cost 11p in 1973 might cost you nearly fourteen times as much today. By comparison, the average CEO is taking home nearly 20 times as much as in 1973 and that’s 30% more than we would have expected. The question is, do today’s CEOs really add 30% more value? Those at the top have benefited from soaring pay over many years, while mid-level managers and others have been left behind. Compounded by this year’s pay rises at the top, bosses run the risk that this pay gap will leave staff disillusioned and disengaged a time when motivated, engaged employees are vital for business success.”

The differences this year are largely due to sharp percentage increases in bonus payments at top levels compared with figures released this time last year. The salary data, taken from over 43,000 executives in 180 UK organisations, shows that the average bonus for a Director is currently more than 14 times the size of the average bonus for all executives (£64,594 compared to £4,665). In addition, while the incidence of bonuses has fallen for a second year in a row – 41.0% of those surveyed received a bonus last year, compared to 47.3% in the 2012 report and 53.5% the year before that – the percentage of Directors in receipt of bonuses remains much higher at 48.2%.

The research also shows that the number of employers struggling with staff recruitment continues to increase year-on-year. Almost two thirds (64.7%) of employers experienced problems with staff recruitment over the last 12 months – up from 58.7% in the 2012 report and 48.9% in 2011. Echoing warnings about the continuing downturn exacerbating existing skills gaps and creating new ones, finding managers with the right skills was identified as the biggest recruitment issue (by 76.4%), followed by competition with other organisations for quality candidates (45.5%) and the salaries on offer (43.6%).

Labour turnover is less than half that recorded in last year’s report – 9.2% compared to 20.3% – with resignations remaining the major contributing factor to this figure at 4.0%. Redundancies are down 1.0% on last year, making up 1.7% of the turnover figure.

Mark Crail, Head of Salary Surveys and HR Benchmarking at XpertHR, says:“Through good times and bad, those at the very top have enjoyed pay rises over a period of 40 years that have opened up a massive gap, not just with workers on the shop floor but with middle and even relatively senior managers. In 1973 when we launched this survey, a typical chief executive earned less than three times as much as a middle manager; today they earn nearly five times as much. This isn’t just a short-term boost for top executives, it’s a big long-term change in society.”

 
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