Five years of pay ratio disclosures show little change in CEO to worker pay gaps

● New research on pay ratio disclosures finds that the median ratio of the CEO’s pay to that of the median UK employee was 52:1 across FTSE 350 companies in 2023/24 – a similar level to 2022/23. The median pay ratio of FTSE 350 CEOs to their UK employee at the 25th percentile (or lower quartile threshold) of the pay distribution was 71:1 in 2023/24, down from 75:1 in 2022/23.  

● These ratios are higher for the FTSE 100, where the median CEO/median employee ratio was 78:1, and the median CEO/lower quartile employee ratio was 106:1 (80:1 and 119:1 in 2022/23).
 
● Widest CEO to median employee ratio in 2023/24 was at Mitie 575:1 followed by Tesco 431:1. At both companies the pay ratio more than doubled compared to 2022/23 levels. 18% of FTSE 350 companies had a ratio of over 100:1 in 2023/24 while at 5% it was over 200:1
 
New research published today by the High Pay Centre think tank, funded by the abrdn Financial Fairness Trust, examining five years of mandatory ‘pay ratio’ disclosures, shows that CEO to worker pay gaps remained stable from 2019-2024 with a brief narrowing of the gap during the Covid-19 pandemic.

The median ratio of the CEO pay to that of the median full-time UK employee was 52:1 across FTSE 35O companies in 2023/24, down from 54:1 in 2022/23. The median pay ratio of FTSE 350 CEOs to lower earning colleagues at the 25th percentile (or lower quartile threshold) of the UK employee population was 71:1 in 2023/24, down from 75:1 in 2022/23.  

These ratios are higher for the FTSE 100, where the median CEO/median employee ratio was 78:1, and the median CEO/lower quartile employee ratio was 106:1 (80:1 and 119:1 in 2022/23). 18% of FTSE 350 companies had a CEO to median employee ratio of over 100:1 while at 5% it was over 200:1. The pay ratio between the CEO and the 25th percentile was over 100:1 at 28% of companies and over 200:1 at 9%.

Average pay for workers at the 25th percentile across the ten companies with the lowest lower quartile thresholds has increased by £2,094 since last year, an increase of 11.46%. This suggests that there has been some progress toward raising pay levels for lower earning workers (at least for those classed as direct employees and therefore included in the pay ratio figures). However, the changes could also reflect changes to the employee population used to make the calculation – if the size of the workforce has been reduced or jobs outsourced or relocated this might significantly change pay at the 25th percentile of the UK employee population without workers experiencing a significant change in their pay levels. The report notes that poor quality reporting by companies make the causes of changes in employee pay hard to assess.

The report argues that while the pay ratio disclosures have major limitations and imperfections that ought to be addressed, they have filled a gap in corporate reporting. Even though annual reports are typically now over 200 pages long and remuneration reports average 29 pages in length, the pay ratios are the only reporting requirements that provide investors, workers and other stakeholders with consistent, comparable data on pay levels of workers outside the boardroom. 
 
The report recommends that: 
 
● Companies should provide more detailed information on how many jobs they provide at different pay levels 
● Outsourced workers, who often carry out very low-paid work, should be included in the pay ratio calculations 
● Companies should be required to communicate information on CEO-to-worker pay gaps directly to their workforce, as well as publishing the figures in their annual report. 

The report also discusses the hypothetical potential of a ‘maximum wage’ expressed as a pay ratio to raise incomes by re-balancing distribution. The High Pay Centre note the UK's high, by international and historic standards, levels of inequality and concentration of incomes and note that a maximum ratio could prove a more empowering and politically popular way to reduce inequality rather than relying solely on taxes and transfers.

If the CEO pay at 112 FTSE 350 companies that are not currently Living Wage Foundation accredited was capped at ten times the pay of their median UK employee, this would create savings of £267m across the companies, equivalent to the cost of raising the pay of nearly 87,000 workers paid the national living wage in 2023/24 to the real living wage. Even after this redistribution, average CEO pay across the companies would have remained close to half a million pounds.

High Pay Centre Director Luke Hildyard said: 
“Over the past five years, pay ratio disclosures have given workers, investors and other stakeholders a much better insight into how companies distribute pay, one of their biggest items of expenditure.

“There has been a lot of interest in the role that wealth taxes on those at the top and other forms of redistribution could play in reducing the UK’s very high levels of income inequality, but it’s also important to stop these inequalities from emerging in the first place. Our research suggests that a maximum CEO to worker pay ratio could help ensure that all workers get a fair reward for their contribution to business success. It is time for policymakers to consider the idea seriously.”
 
Mubin Haq, CEO of abrdn Financial Fairness Trust, said: 
“Whilst pay ratios between low-to-middle incomes and CEOs and the companies they work for have not fallen, they have not substantially increased either. Maintaining this parity during a period when average wages have generally not kept pace with living costs is the minimum that can be expected. That is not the case across the board and some companies have seen pay differences between their low earners and average paid staff more than double including at companies which already had significant pay gaps. 

“Much more can and needs to be done to closing the gap by employers, investors and government. Voluntary measures clearly have limitations and therefore there is a need to rethink how pay ratios are reported and the results shared with workers and other key stakeholders.”

Read the full report.