ICAEW.com works better with JavaScript enabled.

Executive pay rises amid cost-of-living crisis

Author: ICAEW Insights

Published: 31 Aug 2023

Average CEO pay is now 118 times that of the average UK worker, compared with 108 times in 2021 and 79 times in 2020.

The average FTSE 100 CEO received £3.91m in 2022, up from £3.38m in 2021, according to the latest research. The 16% rise in executive pay comes at a time of increasing economic difficulty in many households in the UK, and widens the gap between the lowest paid workers and executives in UK public companies.

Last year’s rise marks the highest level of average pay in five years, according to annual research from the High Pay Centre (HPC).

AstraZeneca CEO Pascal Soriot was the highest paid CEO, making £15.32m, ahead of Charles Woodburn of BAE Systems, who made £10.69m. 

The HPC says: “At a time when so many households are struggling with living costs, it is surely not desirable or sensible for companies, including some of Britain’s biggest employers, to prioritise a half a million pound pay rise for executives who are already multimillionaires.”

Off the back of its recent findings, the HPC is calling on the government to reform rules on the corporate pay-setting process. Some of these include the need for companies to include a minimum of two elected workers on remuneration committees; greater detailed disclosure of pay for top earners beyond the executives and ending long-term incentive payments and replacing them with mechanisms such as profit shares that are common to all staff.

“The well-above inflation CEO pay rises outlined in the report have the potential to be a major reputational risk for the companies concerned,” says Peter van Veen, Director, Corporate Governance and Stewardship, ICAEW.

Against the backdrop of rising executive pay, real terms wage growth has failed to keep up with rising prices, leading to a serious cost- of-living crisis. Median pay for full-time UK workers grew 5% from 2021 to 2022 – far lower than inflation in this period. Higher interest rates and consequently higher mortgage repayments and rents have further exacerbated the hardship for many households. 

The HPC conceded that the rise in CEO pay can be attributed, at least in part, to the economic recovery and related growth experienced in 2021 and 2022 following COVID-19 shutdowns in 2020, leading to strong incentive pay awards tied to profitability and share prices. 

Alexander Pepper, Professor of Management Practice, London School of Economics and Political Science, says: “Many people will be surprised at the 16% increase in FTSE100 CEO pay when average weekly earnings are rising at around 7.5% and the government is urging pay restraint to help contain inflation. FTSE100 CEO pay fell sharply during the pandemic and hasn’t fully recovered since then. It shouldn’t really be a great surprise to see CEO pay in 2022/23 taking a further step back towards pre-pandemic pay levels. 

“But the optics certainly don’t look good; it’s hard to explain compared with the rise in average national earnings and it won’t help those seeking to resolve current pay disputes.”

Of the 58 companies that increased their CEO’s pay in 2022, the three largest percentage increases were at Centrica (a rise of 413%), Smiths Group (307%) and Auto Trader Group (230%). Of the 37 companies that paid their CEO less in 2022, the greatest percentage decreases were at Reckitts (a decrease of 97%), JD Sports (52%) and Endeavour Mining (47%), according to HPC research.

Of the 97 FTSE 100 companies covered in the report, eight have female CEOs, a fall from the previous year, where there were nine female CEOs. Of the companies that had a female CEO for all of their financial year, the median single figure of remuneration was £3.91m, which is the average salary for CEOs this year. 

Currently, FTSE 100 companies are not required to disclose the ethnicity of their CEO or senior management teams, so the report was not able to determine the level of under-representation of ethnic minorities from annual reports and accounts. 

Last year, the total expenditure of FTSE 100 companies on their executives’ pay package was £725.08m for 218 executives roles – 68% more than the total spend on CEO pay, suggesting overall executive pay is high beyond just the role of CEO.

Despite the executive pay rises in 2022, the average FTSE 100 CEO pay of £3.9 million in 2022 is much lower than the median pay of around £12 million ($14.8 million) of US CEOs on the S&P 500 last year. In Australia, the average CEO pay for ASX100 CEOs was £2.2 million (AUD$3.93 million) in 2022, while in Canada it was £5.4 million (C$8.6 million). 

“Although UK CEO pay still lags behind US CEO pay, the report outlines that perceived excessive CEO pay is one of the top reasons for lack of trust in business. Boards therefore need to be mindful of how increasing executive pay in difficult economic times will be perceived by stakeholders,” Van Veen says. 

“It is extremely worrying that the report outlines that executive pay along with perceived poor pay and conditions of lower-paid staff, another top reason for reduced trust in business, has led to an overall perception that business has a generally more negative impact on society than a positive one.” 

Discover more from ICAEW Insights

Insights showcases news, opinion, analysis, interviews and features on the profession with a focus on the key issues affecting accountancy and the world of business.

Podcast icon
Insights Podcast

Hear a panel of guests dissect the latest headlines and provide expert analysis on the top stories from across the world of business, finance and accountancy.

Find out more
Daily summaries
Three yellow pins planted into a surface in a row
News in brief

Read ICAEW's daily summary of accountancy news from across the mainstream media and broader financing sector.

See more
A megaphone
Stay up to date

You can receive email update from ICAEW insights either daily, weekly or monthly, subscribe to whichever works for you.

Sign up