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Executive Pay: Covid-19 and the Future


Average CEO pay for the FTSE 100 group has increased from around £1.2 million in 1999 to around £3.5million today. In 1998, CEO pay was 58 times that of an average full-time worker, whereas now, the gulf has widened – the average FTSE 100 CEO earns 130 times more per year than an average full-time employee. The U.K. economy has been plunged into an unprecedented recession. Many are suffering the effects of lower income or job losses, with Rishi Sunak’s relief packages ending, and a lack of future aid in sight. The life has been sucked out of countless companies, and, while many have so far managed to stay afloat, some have suffered a more fatal blow. So, the questions to address are as follows - have high power executives also started feeling this pressure? Will executives see their incomes rise post-pandemic, or will this recession permanently stunt their compensation growth?

Pay Breakdown

Most executives earn a remuneration package. This is generally made up of four different sections:

1. Salary

Like most normal people, CEOs do receive a salary. However, in 2019, salary only accounted for 20 percent of total pay.

2. LTIP

The LTIP (Long-Term Incentive Plan) makes up the majority of the executive pay, at 51 percent. Individual executives are rewarded with stock or options upon the completion of a firm’s long-term goals after a set number of years (e.g. four years). These goals are generally aimed around increasing shareholder value or boosting the share price of their firm. Companies use these plans to hold on to talented workers in what is a very competitive field. Within the FTSE 100 index, 81 constituent companies are currently using LTIPs.

3.STIP

The STIP (Short-Term Incentive Plan) is similar to the aforementioned LTIP – the only difference being the length of time set for the executive to achieve their goals. The STIP is also more commonly known as a bonus. As a proportion of total remuneration, a STIP makes up 23 percent of pay.

4. Pensions

Pension pay, or payments in lieu of a pension contribution, is relatively small in comparison, making up just four percent of the total pay. Some CEOs in recent years have not received any type of pension benefits at all.






The Covid-19 Effect

From the start of July, the High Pay Centre reported that only 36 FTSE 100 companies had announced executive pay cuts and only eleven firms had cancelled bonuses in relation to Covid-19. Unsurprisingly, most of these companies are in sectors which were hit hardest by recent events, such as hospitality and retail. However, some of these pay cuts are only salary deferrals (meaning they could still get their full salary), and bonuses in some cases may still be offered in the form of stock or options. Top CEOs don’t seem to be affected by the crisis – while some have voluntarily taken pay cuts, these reductions are fairly pitiful, and in many cases, one must question the true motivation behind their decision (i.e. are they voluntarily taking a pay cut because it will give them good media coverage and potentially boost the share price of their firm, which in turn will allow their STIP criteria to be met)?

New Regulation

CEO pay is extremely high and certainly controversial. Therefore, it may be surprising to note that despite their huge pay, both median and mean FTSE 100 CEO pay levels have not seen any considerable increases for almost ten years. Nevertheless, in recent years, CEO pay has been the subject of increasing scrutiny. New regulation has allowed stakeholders to get a better insight into corporate pay practices.

In 2019, The Companies [Miscellaneous Reporting] Regulations meant that large listed companies were forced to divulge more information regarding pay than ever, along with a breakdown and justification of CEO pay. In addition, the U.K. Investment Association has begun a public register, detailing shareholder opposition of FTSE companies’ decisions, showing which firms are acknowledging shareholder dissent and how they are resolving shareholders’ concerns.

These new regulations are proving to be positive news for greater equality within the workforce, alongside new regulations on gender pay disclosure.

The Future?

The devastating effects of Covid-19 on the wider economy are likely to put more pressure on companies to spread pay more equally within companies and close the gap between high executives and lower paid workers. With more jobs at risk and incomes at risk of falling, it is expected that in 2021, when pay figures for this year are released, the top earners will likely take some form of pay decrease.