Tuesday, October 14, 2014

Yes, CEOs are ludicrously overpaid. And yes, it's getting worse

These charts show how the richest are pulling away from the rest

A large computerised display of the British FTSE 100 index is pictured in London
Nice work if you can get it: FTSE 100 CEOs have seen huge pay increases Photo: AFP
A new report produced by the TUC claims that we're in the middle of the worst pay squeeze since the 1860s, with real wages falling for the seventh year in a row. Not the best time for another report, by Incomes Data Services, to show that FTSE 100 directors have received a bumper 21 per cent pay increase over the past year. While their actual salaries only rose by 2.5 per cent, rising share prices and juicy bonuses saw their median pay packet reach £2,433,000. The typical CEO now rakes in £3,344,000, or 120 times more than the average UK worker.
The chart below, taken from the IDS report, compares the wages of the highest-paid director of each FTSE 100 company (which usually means the chief executive) with the average UK salary. It shows how, since 2000, bosses' salaries have increased almost six times more quickly than their workers'. (Pay packets at smaller companies, in the FTSE 350, have also risen much faster than ordinary wages, but not quite as spectacularly.)
Can such pay packets possibly be justified? Even for those of us on the free-market end of the spectrum, it's very hard to see how. You can make the argument that these executives are part of a global marketplace for talent, that the international focus of the FTSE means it's relatively unmoored from the UK economy per se, or that the companies themselves have become larger and more profitable and their managers are reaping their just rewards.
But none of these arguments quite holds up. If you take the salary data for those FTSE 100 chief execs, and ask a Bloomberg terminal for the total revenues and profits of the companies they run over the past few years, you see that CEO pay has massively outpaced anything with which it can possibly be correlated - let alone the FTSE 100 Index itself, which is the blue line on the bottom.

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