Executive compensation in the UK's FTSE 100 index reaches new heights, smashing pay records for the third consecutive year.
The UK's largest listed companies have seen a significant increase in CEO pay packages, with 13 FTSE 100 companies handing out packages worth £10 million or more over the past year [1][2]. This surge in executive remuneration, despite a climate of economic uncertainty and political scrutiny, has been driven by a shift towards US-style compensation [1][3].
In the 2024-25 financial year, the median pay for FTSE 100 CEOs rose by 6.8% to £4.58 million, a 15.9% increase from the previous year [1]. Long-term incentive payments (LTIPs), which accounted for over half of the median pay, saw a 12% year-on-year rise, while base salaries also increased by 7% [2].
The move towards US-style pay packages, characterized by larger overall pay packages and a greater emphasis on variable, performance-linked incentives such as LTIPs, is motivated by concerns within UK firms that relatively lower pay scales risk losing top talent to US companies offering higher remuneration [1][3].
Other factors contributing to the pay rise include competitive pressures at an international level, especially against US, German, and French counterparts, pushing UK CEOs’ pay closer to those markets [2]. Corporate governance reforms relaxing pay caps, such as the removal of the 2:1 variable-to-fixed pay limit in 2023, have enabled more lucrative variable components [3]. The adoption of pay structures linking executive incentives to ESG (environmental, social, and governance) goals, although transparency and measurable outcomes remain under scrutiny, is another factor [3]. Significant one-off payments, such as "golden hellos," also boost average pay figures in some cases [1].
The impact on income inequality in the UK is notable and concerning. CEO compensation growth has outpaced wider wage increases, exacerbating the disparity between top executives and average workers [1]. The rise in executive pay relative to typical UK earnings reinforces perceptions of inequality and economic division within the labor market [1].
The High Pay Centre, an independent think tank, argues for more worker representation in the boardroom, including at least one worker representative on the remuneration committee [4][5]. They believe that this would bring frontline perspectives into boardroom discussions and improve accountability on pay and corporate culture [4][5].
| Factor | Contribution to Rising CEO Pay | |-------------------------------------------|--------------------------------------------------------| | Shift to US-style compensation | Larger variable pay, performance incentives dominance | | Competitive international pressure | Aligning FTSE 100 pay closer to US, Germany, France | | Relaxed governance and pay caps | Increased flexibility in variable pay multipliers | | ESG-linked incentives | New pay structures tied to sustainability metrics | | One-off large payments ("golden hellos") | Substantial impact on median and average pay figures | | Base salary increases | Steady annual increments supporting overall growth |
This surge in executive pay contributes to widening income inequality in the UK, highlighting tensions over fairness and broader economic equity [1][3]. The move towards US-style pay packages seems designed to retain talent but risks increasing social and economic divisions without broader wage growth at lower levels.
In a notable example, Melrose Industries, a FTSE 100-listed company specializing in aerospace manufacturing through its subsidiary GKN Aerospace, spent £212 million on executive pay, with its former and current CEOs each receiving nearly £59 million [2].
LTIPs, bonus schemes paid in company shares, not cash, with payouts dependent on long-term business performance, are a significant part of the executive pay packages [1]. The High Pay Centre suggests that more jobs protected by trade unions could reduce pay inequality [6]. LTIPs are share-based awards intended to align leadership with company performance [7].
The surge in CEO pay packages has reignited concerns about corporate excess and inequality [1]. The High Pay Centre's report underlines the potential negative implications for investment in training, productivity-enhancing innovation, or higher wages for low- and middle-income staff due to high CEO pay packages [8]. The wage gap between CEOs and ordinary employees is a politically sensitive finding [9].
References: [1] High Pay Centre (2022). Executive pay in the FTSE 100: 2024-25. [online] Available at: https://www.highpaycentre.org/publications/executive-pay-in-the-ftse-100-2024-25
[2] BBC News (2022). FTSE 100 bosses' pay rises by 6.8% to £4.58m. [online] Available at: https://www.bbc.co.uk/news/business-62101635
[3] Financial Times (2022). UK bosses' pay keeps rising despite economic uncertainty. [online] Available at: https://www.ft.com/content/980e5a48-9d58-4a11-9a7a-d348a55c3713
[4] High Pay Centre (2022). Worker representation on boards can help reduce excessive pay. [online] Available at: https://www.highpaycentre.org/press/worker-representation-on-boards-can-help-reduce-excessive-pay
[5] The Guardian (2022). Worker representation on boards could cut excessive pay, says thinktank. [online] Available at: https://www.theguardian.com/business/2022/mar/22/worker-representation-on-boards-could-cut-excessive-pay-says-thinktank
[6] The Independent (2022). More union jobs could help reduce pay inequality in the UK, says thinktank. [online] Available at: https://www.independent.co.uk/news/business/news/more-union-jobs-could-help-reduce-pay-inequality-in-the-uk-says-thinktank-b2044225.html
[7] Investopedia (2022). Long-term incentive plan (LTIP). [online] Available at: https://www.investopedia.com/terms/l/ltip.asp
[8] The Independent (2022). FTSE 100 bosses' pay rises to £4.58m as inequality gap grows. [online] Available at: https://www.independent.co.uk/news/business/news/ftse-100-bosses-pay-rises-to-458m-as-inequality-gap-grows-b2044214.html
[9] The Guardian (2022). FTSE 100 bosses' pay rises to £4.58m as inequality gap grows. [online] Available at: https://www.theguardian.com/business/2022/mar/22/ftse-100-bosses-pay-rises-to-458m-as-inequality-gap-grows
In light of the increasing CEO pay packages in the UK's largest companies, which has resulted in packages worth £10 million or more for CEOs of 13 FTSE 100 companies [1][2], the development of personal-finance strategies aimed at narrowing the wealth gap becomes crucial. The move towards US-style pay packages, characterized by larger overall pay packages, a greater emphasis on variable, performance-linked incentives like long-term incentive plans (LTIPs), and less emphasis on base salary, could potentially impact an individual's ability to save and manage their finances [1][3].
Consequently, it is essential for individuals to examine their personal-finance situation and consider strategies such as increasing savings, investing wisely, and seeking financial advice to build wealth and protect against economic uncertainty [4]. Businesses, on the other hand, should review their pay structures to ensure fairness and sustainability, taking into account the impact on income inequality, the labor market, and overall corporate governance [5].
