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Chief Executive pay, and the Pay Gap

Penny Brooks

3rd September 2017

Last month the government published their proposals for addressing the growing gap between the pay awards of CEO's and the average company employee. The Prime Minister suggested that businesses who pay excessive salaries to senior executives represent the "unacceptable face of capitalism"and should face limits to their ability to do so. Students might like to look at how much the average FTSE100 CEO really is paid, and how their salary is made up.

The CIPD and HIgh Pay Centre have just published a report which gives the reasons for this hot topic. For every £1 the average employee is paid, their CEO receives £129. This is lower than last year’s figure of £148, but is high when compared with the £45 they would have received 20 years ago.

The pie chart here is taken from the report. It shows that the largest part of CEO pay tends to be made up of Long-term Incentive Plans, or LITPs, and STIPs/Bonuses - which are short-term incentives. Here is an opportunity to discuss the role of short term and long term incentives, and give them some context. The report goes on to examine the different ratios by industry sector, and also to compare the ratios for male and female CEOs - no surprise to find that the male CEOs tend to be paid much more. There is also a useful 'Reality Check' article on the BBC website which analyses the pay gaps, and a defence of the government's proposed reforms in the FT, which suggests that they could be effective if they are properly implemented. 

It is also worth noting that the FT is making access to its articles freely available to 6th formers and their teachers, which is going to be a terrific resource. It includes suggested articles, a video pick and quiz of the week's news. You cansign up for it here.

Penny Brooks

Formerly Head of Business and Economics and now Economics teacher, Business and Economics blogger and presenter for Tutor2u, and private tutor

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