This document discusses the increasing gap between top executive pay and average worker pay over the past 30 years in major UK companies. It shows that the multiple of average pay for top executives has increased dramatically from 13-16 times average pay in 1979-1980 to 38-75 times average pay in 2009-2011. While top executive pay has increased to over £1 million per year at some companies, average worker pay has not increased at the same rate. The growing complexity of executive reward policies risks further widening inequality in the workplace.

1. SPECIALIST HR
A rewarding Top pay as a multiple of average pay
crisis for
in six leading companies, 30 years ago and now
x60
x44.1
MULTIPLE OF x14.5 x13.6 x16.5 x14.9 x13.3 x40
AVERAGE PAY
(1979 - 80) x20 MulTiplicATion
TAbles
x0
HR?
Data taken from Cheques
TOP PAY
£225,000 £143,000 with Balances, the report
(1979 - 80) £87,000 £79,000 £81,000 £75,000
of the High Pay
Commission (HPC),
Lonmin Barclays Lloyds Banking BP GKN Reed Elsevier November 2011, using
COMPANY Group figures supplied by IDS.
Top pay in 1979-80 is a
director’s remuneration,
£4,366,000 £4,453,000 while in 2009–11 it is the
TOP PAY
(2009 - 11) £1,534,000 actual total earnings of
Words: Dr Jonathan Trevor £1,865,000 £2,572,000 £2,028,000 the lead executive. The
infographic illustrations: Section Design x0
HPC report points out a
number of caveats,
particularly the fact that
Reward policy is increasingly complex, impossibly
x20
the multiples of average
pay for 2009–11 are
x47.7 x40 calculated on global
technical, focused on too few people, and has
MULTIPLE OF x63.2 x38.4
AVERAGE PAY x75 x75 wage bills and
x60 headcounts, while data
(2009 - 11)
serious unintended consequences. We need a new
for 1979–80 is UK only.
x113.1 x80 However, the data gives
an indicative picture of
approach to liberate value across the organisation
x100 growth in top earnings
relative to average pay in
x120 each company
R
eward is controversial. Whether it’s bank- the employment relationship. The focus for all was the limi- of interest is the new order of the day, and incentives appeal- This should not be interpreted as a rejection of perform-
ing bonuses, fat cat pay for failure, or tation of risk posed by conflict within the employment rela- ing to the financial self-interest of employees at all levels, ance pay per se, but perhaps as recognition of the many addi-
even MPs’ expenses, reward is always in tionship, whether lost productivity on the one hand, or lost from the bottom to the top (especially), have become the pri- tional factors that discreetly influence performance out-
the news, always an emotive issue and wages and job insecurity on the other. mary means through which it is secured. comes beyond the control of management. Successive studies
everybody, always, has an opinion – most until the 1980s and sweeping reform at the hands of the However, managing reward in the strategic sense is far over the past decade indicate that employees consistently
often negative. This, of course, is not new. Iron Lady as well as an exasperated nation, conflict contain- from straightforward. A central theme of my recent book rate financial reward as less important than other factors,
The better part of the 20th century saw ment was the order of the day, and consensus, as difficult as Can Pay be Strategic? A Critical Exploration of Strategic Pay in including their relationship with their immediate superior,
industrial action dominating domestic media reporting as it can be, was the means through which relative harmony Practice is that strategic reward systems are often extremely progression opportunities and the reputation of the firm.
Britain tore itself apart through class conflict, with pay dis- was secured. difficult to manage because of their complexity. Indeed, for Performance pay is merely one element of the package
M
putes and picket lines marking the literal front line between many organisations, research indicates that attempts to use that directs employees’ best effort, behaviours and skills.
unions and management. The new order reward strategically can prove to be more of a liability than a Meaningfully integrating financial and non-financial ele-
Whether then, now or in the future, reward (or pay if you’re ore recently, we have invested instead in benefit, producing conflict rather than unity. ‘ConCerns over ments into a coherent proposition as “total reward” remains
old school) has the potential to induce conflict and consume the notion that reward is a key element in conflict in this context is not as obvious as striking miners talent attrition a challenge because it requires wide involvement across the
value like few other features of modern society. Popularly securing performance and value creation. challenging police armed with batons and water cannon. It is are driving organisation by line managers, HR functions (beyond
seen as a force for ill, can reward be a force for good or are Management unilaterally, so the theory much more dangerous than that, organisationally, because it reward deCisions reward) and employees themselves.
practitioners destined always to live in controversial times? goes, chooses reward strategies, practices is discreet and ever present. It takes the form of employee more than any Further, my research reveals that concerns over talent
The nature and role of reward in organisations has shifted and processes that best support the strategic direction of the disengagement and disenfranchisement, which ultimately other attrition are driving reward decisions much more than any
dramatically over the course of the past 30 years. The major- organisation. Reward, when managed strategically, is a pow- results in employee attrition and the withholding of all- Consideration, other consideration, including performance. Perhaps unsur-
ity of the early to mid post-war period (late 1940s to early erful means through which employers promote employees’ important discretionary effort. As a result, reward specialists inCluding prisingly, the highest performing individuals are not always
1970s) was characterised by the “golden era” of industrial line of sight with managerial goals, align effort and secure believe that an overhaul of performance-based rewards is performanCe’ the highest paid. High performance does not necessarily
relations, in which management and employee representa- desirable behaviours. necessary, given the many acknowledged challenges and equal high reward. Additional powerful factors within the
tives (typically trade unions) sought collectively to repre- It is still a critical element of attracting and retaining tal- unintended consequences experienced when attempting to labour market are influencing decision-making. But if firms
sent and mitigate the pluralism of interest inherent within ent, but its role as the behavioural lever is its real value. unity link pay to performance. are not paying for performance, what are they paying for?
40 ⁄ JANUARY 2012
PEOPLEMANAGEMENT.cO.uk
JANUARY 2012
PEOPLEMANAGEMENT.cO.uk ⁄ 41

2. SPECIALIST HR
This is the thorniest item currently dominating the reward
Historical earnings (median, CEO pay packages (median) Highest and lowest FTSE 350 lead
agenda. The issue is talent – or rather, what constitutes talent
PRESSURE
MOUNTS in the contemporary environment. It is all too easy to speak indexed): FTSE 350 CEOs by market listing, 2010-11 executive total earnings levels 2010-11
April 2011
in platitudes about people being a company’s most important compared with all full-time FTSE
UK employees
£2,711,238
Fair pay in the asset, but, in reward terms, talent refers increasingly to the BASIC SALARY TOTAL CASH* TOTAL EARNINGS** COMPANY RANKING TOP 10 - TOTAL EARNINGS
public sector very few and not the many. companies are prioritising their £3m
Review by economist Will Xstrata 10 £18,426,105
Hutton, commissioned by top management populations more than ever and will do FTSE 100 CEO* FTSE 250 CEO* ALL FULL-TIME EMPLOYEES**
Reckitt Benckiser 21 £17,879,000
HM Treasury, called for anything to hold on to those precious few because, it is per-
£2,009,489
*Based on median total earnings of CEO or £2.5m ICAP 82 £13,419,619
annual publication of pay
ceived, corporate competitiveness depends upon it. The equivalent as shown in annual reports
details of all board-level Tesco 17 £12,038,303
executives, together with implication is that value flows from the few at the top – not **Based on ONS data taken from the ASHE survey
multiples showing ratio of £2m Rio Tinto 5 £11,623,162
the many who are destined merely to follow.
top to median pay in all WPP Group
public bodies – and in the The fear is that the talented few will leave if denied the 350 39 £8,949,985
£1,092,502
private sector too. possibility of significant financial incentives. Perhaps this Gulf Keystone Petroleum 186 £8,913,223
£1.5m
explains why, according to IDS, in the last financial year the Experian 43 £8,601,984
£853,000
£830,000
average increase in total earnings for FTSE 100 directors 300 Jupiter Fund Management 165 £8,530,871
£559,000
£1m
£520,316
was 49 per cent, while average employee pay rises have been Pearson
£450,750
40 £8,003,641
£330,000
£295,000
well below the rate of inflation.
£300,117
£239,000
BOTTOM - 10 TOTAL EARNINGS
£219,217
£215,757
£177,250
Indeed, over the past decade, executives’ and bankers’ £0.5m
250 RPC Group 299 £340,000
remuneration has increased by hundreds of per cent over
“Main Street” pay. It could be argued that incentives and Big Yellow Group 308 £299,708
£0 Nautical Petroleum
Sept 2011 bonuses are being deployed not to align performance, but to 333 £279,000
AIM FLEDGLING SMALLCAP FTSE 250 FTSE 100
Consultation attract and retain the talented few. Performance is the sec- Anglo Paci�ic Group 327 £262,317
200
on executive pay *Salary, bene�its + value of last earned bonus including deferred shares
Consultation paper ondary concern in reward – a talent “logic” that favours the Ferrexpo 104 £213,338
**Total cash + the value of crystalised/realised share-based incentives
launched by business few and not the many has supplanted it. Imperial Innovations 314 £199,995
T
secretary Vince Cable, who FTSE 100, the 100 most highly capitalised blue-chip
referred to “concerns about Stobart Group 323 £181,900
companies; FTSE 250, mid-capitalised companies not
the disconnect between Why does it matter? 150
covered by the FTSE 100; SmallCap, companies outside Kalahari Minerals 271 £150,000
how our largest listed his is both surprising and worrying for a number the FTSE 350 Index; Fledgling, UK companies listed on the
companies perform and the London Stock Exchange that are too small to be included Sports Direct International 201 £150,000
rewards that are on offer”. of reasons. First, many would argue that we are above; AIM, the London Stock Exchange’s international Asian Citrus Holdings 263 £138,404
Government proposals making a transition from an industrial age to 100 market for smaller growing companies.
expected this month. www.ftse.com www.londonstockexchange.com
the uncharted territory of the technology- *some �igures converted
£0m
£2m
£4m
£6m
£8m
£10m
£12m
£14m
£16m
£18m
£20m
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
from foreign currency
enabled. Necessarily, our organisations are Source: IDS
changing too – from the bureaucracy fit for the stable and
predictable world of the industrial age, in which efficiency is
king, to the unstable and non-linear world of the informa- in fact – just because it appears to work elsewhere does not LINKS & NOTES
tion age, in which innovation reigns supreme. Here, value is MEdIaN pay dEaLS ensure relevance in all contexts. Equally, overly technical ThE avEragE
found throughout the networked eco-system, in which acrOSS ThE prIvaTE reward systems are fundamentally ineffective – how can they INcrEaSE IN TOTaL
reside the liberated talents and capabilities of the many – SEcTOr durINg ThE be motivational if they cannot be understood? • CIPD Training The EarNINgS fOr fTSE
reward management short
Nov 2011 not purely those of the talented (or lucky) few at the top of ThrEE MONThS TO However, this all pales next to the most worrying conse- courses and qualifications
100 dIrEcTOrS IN ThE
High Pay Commission
Set up by Compass think the corporate pile. ENd SEpTEMbEr quence – systemic conflict arising as a result of iniquity. Like will give you in-depth LaST fINaNcIaL yEar
technical knowledge and
tank and the Joseph What reward looks like in future organisations is not yet Source: IDS the late 1970s and early 1980s, will we witness widespread Source: IDS
Rowntree Trust, and chaired skills to enable you to
clear, but investing solely in the few would seem a perver- civil unrest because of the perceived inequality made possi- develop tailored strategies
by business journalist
Deborah Hargreaves, its sion of the empowering logic of the information age. ble by a culture of reward that favours only the few? Last and solutions that support
final report set out evidence real organisational and
There are also significant reputational risks attached to summer’s viral riots in the uk’s cities perhaps offer a glimpse business needs
“that excessive high pay
damages companies, is bad current reward practices. The perceived shortcomings of of the future if we maintain our current trajectory. bit.ly/cipdrewardtraining
T
for our economy and has executive and banking pay are damaging to the legitimacy Over recent years, reward has become impossibly techni- past was characterised by busy hands and feet. We desired
negative impacts on society • All IDS data comes from
as a whole”. and credibility of the corporate whole. continued contro- cal – and not just at the executive level. Firms are locked in a Where do we go from here? the Director’s Pay Report only productivity from the many – in other words, compli-
2011/12 incomesdata.co.uk
versy will only attract further attention from regulators and tournament of technical escalation on all fronts. The result is he crisis in reward, if you believe it is a crisis, and the IDS Pay Report
ance with rules and effort towards targets, both conceived
the public alike and, as many remuneration directors believe, mutually assured abstraction of reward practice to the point is an opportunity, however, to re-evaluate the IDSPay.co.uk by the few. Work is no longer physical for the many, but nei-
inhibit further the ability of organisations to align reward where it is no longer grounded in the imperatives of the busi- role of reward in both value creation and value ther is it liberated (or empowered, to use HR speak).
PHoToGRaPH: THe GuaRDIan
• Hay Group data comes
practice to business priorities. Indeed, the government is ness, but aligned instead to generic market norms and so- preservation. As Rahm Emanuel, mayor of chi- from the report Which Way Our workplaces are still characteristically bureaucratic –
due to publish proposals this month aimed at curbing exces- called best practice. It is a path to non-alignment between cago, said of the current financial crisis when Now For Reward? work is performed by the many against the highly prescribed
bit.ly/haygroupreport
sive boardroom pay (see panel, left). reward and strategy. Worse still, institutional research indi- he was Whitehouse chief of staff: “Never let a good crisis go standards of the few. This is no bad thing for the many
Potentially worse still, shareholders who perceive them- cates that many companies merely follow the herd down the to waste.” • Can Pay Be Strategic? organisations for which the bureaucratic model remains fit
A Critical Exploration of
selves as disempowered by their “agents” (a posh academic path of technocracy and normative practice adoption when In my opinion, firstly and most obviously, organisations Strategic Pay in Practice for purpose. But it is certainly not appropriate for all organi-
term for executives), will become more activist on reward, faced with uncertainty over reward outcomes. After all, how should seek to embrace the many. This is not simply a reward is published by Palgrave sations – and fewer still if we are truly moving into the infor-
Macmillan
demanding a greater and ultimately binding say on pay. wrong can something be if everyone is doing it? Very wrong issue but, fundamentally, a work issue. Human capital in the mation age.
42 ⁄ JANUARY 2012
PEOPLEMANAGEMENT.cO.uk
JANUARY 2012
PEOPLEMANAGEMENT.cO.uk ⁄ 43

3. SPECIALIST HR
As an example, I recently asked a class of senior managers
on a corporate change executive education programme if AverAge totAl
they felt they had permission from their executive to take eArnings A
ownership for business transformation. The timid response yeAr for
was, at best, ambiguous; at worst, it was a straight “no”. A ftse 100
Human capital in the post-bureaucratic future must be director
radically different. The competitive environment will Source: IDS
increasingly demand new capabilities of our organisations
beyond mere excellence of execution. competitiveness will
be a function of the capability of the many to autonomously
acquire, share and integrate new knowledge with existing
practices to realise high-value innovations. This is a model of urable and, therefore, relatively easy to incentivise. Perhaps
collective enterprise and not lone-wolf entrepreneurialism. it is also because important aspects of the work lack mean-
Permission will simply not feature. Of course, there will ing? But are highly leveraged incentives the only means
always need to be a degree of hierarchy and managerial co- though which effort can be secured?
ordination in our organisations, because efficiency will Arguably, the relationship between contemporary work
always matter. It is just that it will progressively matter less and personal fulfilment is weak, and will only become more
than other capabilities and, by extension, the few will also
‘current reward so as work becomes increasingly specialised, routine and,
practices,
matter less. current reward practices, especially individual ultimately, depersonalised.
especially
incentives, are standing in the way of this transformation and individual This is not a reward issue, but reward is being used as a
organisations need to move on or, I fear, move out. incentives, are crutch for both weak leadership and, perhaps, intellectually
There are better means for achieving desired reward out- standing in the and morally impoverished work. In this vein, reward is part
comes than relying on financial reward and appealing to way of this of the problem and will never be the solution, no matter how
individual self-interest. Work should be a reward in itself transformation. much money is put on the table. It is destructive and will only
because it is intrinsically engaging – not least because it organisations continue to court controversy. That does not mean we need
makes a demonstrable and positive difference to the worlds need to move on to revert to past practice, but we do need to look to the future
of our people, customers and communities. As psychologist or, i fear, and ask how reward might be – must be – different.
Frederick Herzberg famously said: “If you want someone to move out’
do a good job, then give them a good job to do.” about the author • dr Jonathan trevor is director of the
To a large extent, average banking pay is so out of kilter Centre for People and Organisation, Cambridge Judge Business
with average industry pay because the work output is meas- School, University of Cambridge
How use of variable pay differs according to seniority Source: Hay Group
annual bonus spot recognition scheme share options long-term incentives
ExEcutivEs
sEnior ManagEMEnt
ManagEMEnt
33% 23%
8% 6%
staff 2%
42% 10%
47%
12%
35%
25% 56%
17% 57%
8% 18%
44 ⁄ JANUARY 2012
PEOPLEMANAGEMENT.cO.uk