Bosses bonus boom widens long-term pay gap

Among the renewed debate on whether the Thatcher years sowed the seeds of social and economic inequality, comes new salary data by the Chartered Management Institute (CMI) and XpertHR, which reveals company directors (including chief executives) enjoyed pay increases almost twice the size of the average UK executive over the last 12 months. The research also found that the number of employers struggling with staff recruitment continues to increase year-on-year. Almost two thirds (64.7 per cent) of employers experienced problems with staff recruitment over the last 12 months – up from 58.7 per cent in the 2012 report and 48.9 per cent in 2011.

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 question is, do today’s CEOs really add 30 per cent 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 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 per cent 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 per cent on average over the last year, in line with a 3.0 per cent 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 per cent, the figure jumps to 5.3 per cent over the past year when bonus payments are accounted for. This compares with a much smaller 2.1 per cent salary plus bonus rise for directors between 2011 and 2012. Similarly, chief executive basic salaries increased by just 1.8 per cent, but when bonuses are added in the percentage increase leaps to 15.8 per cent. In stark comparison, the figures released this time last year showed a salary plus bonus decrease for chief executives of 0.5 per cent.

The National Management Salary Survey marks its 40th anniversary 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 per cent more now than would be expected from the 1973 data, while middle managers now earn 28 per cent 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.

The research also shows that the number of employers struggling with staff recruitment continues to increase year-on-year. Almost two thirds (64.7 per cent) of employers experienced problems with staff recruitment over the last 12 months – up from 58.7 per cent in the 2012 report and 48.9 per cent 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 per cent), followed by competition with other organisations for quality candidates (45.5 per cent) and the salaries on offer (43.6 per cent).

XpertHR’s pay research stretches back to 1971 via what was then Industrial Relations Services. The first ever IRS pay survey on equal pay can be found here.

by Sara Bean