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Pandemic caused pay ratios fall, but new analysis indicates ratios are now increasing to new highs

23 May 2022

● The median CEO/median employee pay ratio across the FTSE 350 was 44:1 in 2020/2021, down from 53:1 in 2019/2020. 2020/21 also saw a decrease in the median CEO/lower quartile employee pay ratio for the FTSE 350, at 59:1 compared to 71:1 the previous year.

● In the FTSE 100, the median CEO/median employee ratio was 67:1 and the median CEO/lower quartile employee ratio was 93:1 (73:1 and 109:1 in 2019/20).

● 27 Companies (13% of the total) had a CEO/median employee pay ratio of over 100:1, compared to 45 in 2020.

● Pay gaps are set to rebound post pandemic, with the 69 companies to have reported in the first quarter of 2022 showing a median pay ratio of 63:1, almost double the 34:1 median ratio at these companies in 2021.

New research published today by the High Pay Centre think tank shows that cuts to executive pay during the pandemic led to a fall in the median CEO/median employee pay ratio across the FTSE 350 to 44:1 in 2020/21, down from 53:1 in 2019/20. The median gap between CEOs and their lower quarter employees fell to 59:1 from 71:1 in 2019/20.

However, early examinations of more recent disclosures indicate that pay gaps will widen again in 2022.

Across the 69 companies that disclosed pay ratios in Q1 2022, the median CEO/median employee ratio was 63:1. This was nearly double the ratio for the same group of companies in 2021, at 34:1.

The High Pay Centre’s analysis, supported by the Abrdn Financial Fairness Trust, found that pay ratios were widest in the retail industry with an average pay ratio of 117:1. Ratios were lowest in media (29:1) and financial services (30:1).

The analysis also found that:

  • while pay gaps between the CEO and the upper quartile threshold were relatively wide, with a median CEO to upper quartile threshold ratio of 31:1, gaps further down the workforce were far narrower. The median ratio between the upper quartile and lower quartile thresholds (the 75th and 25th percentile points) was slightly under 2:1.
  • 26 companies paid workers in the lower quartile of their pay distribution less than the annualised equivalent of the London Living Wage, while 8 paid less than the equivalent of the Real Living Wage. However, complications with how companies accounted for pandemic-related changes to their workforce in the pay ratio calculations makes comparisons difficult

The report notes that the two main limitations of the pay ratio reporting requirements are:

  1. the lack of information regarding the pay of top earners between the CEO and the upper quartile threshold, meaning it is difficult to assess what the company is spending on very high earners and the potential to raise pay for low and middle income workers by re-balancing
  2. the failure to account for indirectly employed worker, meaning that many low paid workers are excluded from the calculation. Using accreditation status from the living wage foundation to estimate the pay of low earners, the High Pay Centre calculates the median CEO to lowest-paid worker ratio to be 117:1.

Luke Hildyard, Director of the High Pay Centre, said:

Ours report indicates that companies and their stakeholders showed some sensitivity to the need to treat workers fairly and reduce vast pay inequalities during the pandemic. However, as the Covid 19 emergency hopefully reduces, it would be a shame if the spirit of solidarity it generated fades away as well.

With the dire outlook for the UK economy, how we share existing resource will become increasingly important. Major employers have a key role to play balancing their pay awards so that high middle and low earners are all paid fairly and proportionately.”

Mubin Haq, CEO of abrdn Financial Fairness Trust, said:

The significant fall in pay ratios during the pandemic shows change is possible. As inflation starts to bite, it’s more important than ever that companies do the right thing and pay is distributed fairly. Going back to past practice, where pay ratios increase year-on-year, is one area where we do not want to see a return to normal following the pandemic.

However, this increasingly seems unlikely as evidence from a number of companies shows pay at the top rebounding. Wage growth for those on lower incomes will be critical to ensuring millions can weather the cost of living crisis we are now facing.”

The report makes recommendations for improvements in reporting, and for wider policy change.

Recommendations for better reporting include:

  • Companies should provide more granular information on the earnings of those between the upper quartile threshold and the CEO.
  • Outsourced UK workers should be included in the pay ratio calculations,
  • Companies should directly provide information on pay ratios to their workers.

Recommendations for wider policy change include:

  • Establish sectoral governance bodies to monitor fair pay.
  • Legislate for worker representation on company boards.
  • Give shareholders binding votes on directors’ remuneration reports.
  • Require companies to include guidance on potential future pay ratio sizes in their remuneration reports.

Read the report