(Bloomberg Opinion) -- The annual meeting season looms in the U.K., and the target for shaming by shareholders is clear: the chair of the company pay committee.
By 1 p.m. London time, Britain’s top CEOs will have already earned what the average U.K. worker gets in a year, according to the High Pay Centre think tank. That’s a two-hour advance on 2018. The finding is somewhat artificial, comparing FTSE 100 remuneration for 2017 with the most recent full-time worker pay data. But it reinforces the impression that fat cat bosses continue to pull away from everyone else.
Average CEO pay was higher in 2017 than in 2015, despite dipping in between. Bosses’ pay jumped faster than that of part- and full-time workers last year. The one encouraging trend is that CEO pay relative to his or her company average seems to be declining.
So much time and effort goes into setting pay, yet somehow the outcomes often defy common sense. The median FTSE 100 average for a CEO in 2017 was 3.9 million pounds ($4.9 million) — a huge figure even for running a multinational.
It seems as if a natural ratcheting up is underway. No company wants its CEO to be in the bottom quartile for pay, so each year the floor gets raised. Complex bonus packages seem to regularly deliver higher awards than envisaged. Rarely does pay go down. Emma Walmsley at drugmaker GlaxoSmithKline Plc gets less than than her predecessor Andrew Witty, but that’s unusual.
Remuneration committees appear worried about losing CEOs if they don’t give them more. The reality is that an individual’s contribution to corporate success is almost impossible to measure. Strategy is a board matter. Execution relies on the capabilities and competitive advantages already in place, regardless of who’s boss.
The valid questions are whether CEO pay is fair, and whether it’s the only way of securing the leadership the company requires.
It’s true that there does seem to be a shortage of talent in some sectors. Look at the struggles of GKN Plc in finding a new boss in 2017. It ended up with an internal appointment, who had to step down before he’d even started. A hostile takeover followed. Not coincidentally, the second most highly paid U.K. CEO in 2017 was at the buyer, Melrose Industries Plc. But this hardly justifies the huge numbers at the top of the tree.
British executive pay may be eclipsed by the U.S. That won’t do anything to quell public unease at a time when the opposition Labour Party is itching to implement a radical and interventionist policy agenda on salaries. Companies must change or have it forced on them from above.
The High Pay Centre rightly zooms in on the role of the remuneration committee. It suggests it should be more of a “people and culture” committee, with a duty to consider succession planning and non-financial measures of attainment. At the very least, this might make the board members overseeing pay look at the CEO as a resource rather than an indispensable component of success. Remuneration committees may need different skills to perform such a task, which will take time.
They already have the power to reverse the upward momentum. They just need to feel the pressure to do so. As the AGMs get underway, investors have the chance to turn the screws on the individuals in charge.
To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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