Why we need to shine a light on the FTSE 100’s 1,397 fat cats

A new report shows they were paid a collective £2bn, with an average salary of more than £1.4m. We investors need to be told more about where our money is going, says James Moore

A report from the High Pay Centre and the CIPD has shone a light on 1,397 corporate fat cats (Getty)

CEOs get all the attention when it comes to the debate over excessive pay but they are far from the only fat cats in corporate Britain, as some startling figures in a report by the High Pay Centre and the Chartered Institute of Personnel and Development make clear.

The two organisations found that there are 1,394 gilded individuals at the top of the corporate pyramid designated as “key management personnel”. These people receive strikingly high sums of money. In the most recent financial reporting year for the FTSE 100, they were collectively paid £2bn, good for an average annual salary of just over £1.4m.

Who are these financial wizards? What do they do? Because of the way the reporting rules work it’s very difficult to say.

Companies nearly always include their CEOs and finance directors in their contributions to the 1,394, and we know all about them. They also tend to slot in board members, mostly non-executive directors whose fees are more likely to run to six figures than seven, for a couple of days’ work a month.

But they don’t have to. They have broad discretion over who goes into the calculation. All they have to say is say how much they pay the people they choose to place in this category. They don’t even have to say how many there are.

Some 96 FTSE 100 companies do give numbers. They range from two to 32.

The report’s compilers allow that the three that don’t (as an externally managed investment company with only a handful of employees, Scottish Mortgage Investment Trust, was excluded) may have published a figure somewhere. They just weren’t able to find one in the annual reports of Barclays, the London Stock Exchange and support services outfit Ferguson.

Given that Barclays’ missive runs to 360-plus pages and the London Stock Exchange’s comes in at about half that, with lots of small print in both, it’s easy enough to sympathise with the challenge they faced.

Why does this matter? Well, these are public companies, which means that if you have a pension, or an ISA, or an investment-linked life-insurance policy, you will own a piece of these companies.

It is therefore, in a very real sense, your money that is being paid to this relatively small number of people rather than being invested in the business or paid out to you in the form of dividends.

Excessive pay more generally may also be having a negative impact on the corporate performance your financial future depends upon.

In June 2019, the CIPD commissioned YouGov to survey employees regarding their views on a number of pay issues, including some regarding executive remuneration.

Based on a sample of 2,180 employees, the research found that 64 per cent of workers agreed that CEO pay is too high in the UK, with just 4 per cent disagreeing.

When it came to their own CEO, 33 per cent of employees thought that their pay was too high. Significantly, 39 per cent reported that their CEO’s remuneration “does not encourage them to go the extra mile for their employer”.

The report also had similar findings to the one I covered earlier this week on CEO pay published by Deloitte. It fell, but given they average around £3.5m you shouldn’t cry any tears for them.

Where am I going with all this? This report clearly shows that the problem of excessive pay goes way beyond the CEO’s office. How far? That’s the problem. We just don’t know.

That needs to change.

In addition to proposing that remuneration committees be charged with considering wider workforce reward practices, fairness and investment in people, the report recommends that pay for the top 1 per cent of earners should be disclosed by public companies.

This would shine some much-needed light onto the issue.

The debate over inequality in Britain matters, and these enormous pay packages contribute to it. Those of us who have savings linked to the stock market also really ought to be told what, and who, our money is being spent on. And why.