What cost of living crisis? Boardroom pay soars despite flatlining economy

The economy barely grew through the course of 2022 and the FTSE also stalled, but still bosses netted substantial pay rises as their employees suffered through a generation pay crisis, writes James Moore. What possible justification can there be?

Pay for the UK’s top bosses surged last year, according to new figures (Victoria Jones/PA) (PA Wire)

Cost of living crisis? What cost of living crisis? There was nothing of the kind evident in the British boardroom last year. Its denizens appear to have been completely oblivious to the generational squeeze blighting the lives of just about everyone outside their office windows.

With the pandemic out of the way, pay setting remuneration committees (RemCos) got back to business as usual, said business being the construction of pay packages bearing no relation to the economy or the perfromance of the stockmarket, let alone the real world, by handing CEOs a median rise of 16 per cent. The number comes courtesy of the High Pay Centre, a non partisan think tank.

At this point, some context is due. In 2022 the FTSE 100 posted a gain of roughly 1 per cent. The UK economy grew by around 4 per cent but that compares to the Covid impacted year of 2021. The Office for National Statistics notes that through the course of 2022, UK plc barely grew at all. Its Annual Survey of Hours & Earnings (ASHE), meanwhile, shows that the median full time worker’s pay increased by just 5.7 per cent. Inflation in the year to December 2022 came in at 10.5 per cent. So the CEO about town enjoyed not only a rise in absolute terms but, more importantly, a rise in real terms. Based on an analysis of the official data, the TUC concluded that workers’ inflation adjusted pay fell by 3 per cent.

What possible justification is there for such a bumper rise against the backdrop of a flatlining economy, a flatlining stockmarket and an unprecedented nationwide pay squeeze? Well, there isn’t one. Clearly. Charged with delivering value for shareholders, Britain’s CEOs didn’t produce much. So why the rise?

The answer lies with those RemCos. In 2018, the UK Corporate Governance Code underwent some important reforms. The aim was to broaden the remit of boards and their committees to ensure that Britain’s bosses paid more attention to people, people management, culture, fair and proportionate workforce pay and employee engagement among other things.

However, a year later a report from the Centre, in conjunction with the Chartered Institute of Personnel & Development, concluded that RemCo members were drawn from a very narrow corps of highly paid professional people.

It isn’t unusual for the non executive directors (NEDs) sitting on these committee to be former CEOs or other people who enjoyed successful business careers before picking up boardroom baubles and the handsome fees commensurate with them. Senior accountants or other people people with a background of working at professional services firms, lawyers and, of course, bankers are also well represented.

What about HR people, those who are supposed to know about people, pay and what have you? They’re much less common. In fact the two organisations in July released a report which found that just a quarter (25 per cent) of FTSE 350 firms have a board member with an HR background, while only 2 per cent have an HR director as an executive board member.

By contrast, nearly two thirds (65 per cent) of boards include a director with a background in banking while roughly half (49 per cent) have at least one NED with a background in marketing/sales or advertising.

As for the worker representation, which is standard practice and entirely uncontroversial in some of Europe’s biggest most successful companies? It is all but non existent.

There has been some progress made in getting more women on boards but very little in broadening the backgrounds of appointees. Britain’s boardrooms are made up of a few thousand people who largely think alike. Is it, then, any wonder that the apparently incomprehensible decisions that lead to bosses getting median pay rises of 16 per cent are made time and again?

Theresa May, during her ‘burning injustice’ phase, seemed to recognise that this was a problem. At one point, she appeared to be on the cusp of securing real change. But then she was got at by the business lobby and a few tepid reforms were all that resulted. Boards often now opt to appoint a NED to pretend to care about workers. But that’s about it. So the furore when Centre does its annual survey of boardroom pay looks set to continue for the foreseeable future.

But, but, but , I hear you say, shouldn’t investors be alive to this? Given that it is their money that is being blown and their companies which are over incentivising bosses while disincentivising workers?

According to the High Pay Centre, FTSE 350 firms spent a staggering £1.33bn on the pay of 570 executives. That is a chunky, materially significant number. It is the sort of number that ought to concentrate minds. But, with the exception of a few particularly egregious cases every year, institutional shareholders seem incapable of acting in their own best interests. Or, rather, in the best interests of their clients. Which, if you have a pension, or an ISA, means you and me.

It really is high time someone picked up May’s cudgels and did it properly. The benefits could be considerable. But, oddly, the political classes appear all but completely blind to the issue.