New research has found that there is only a “negligible” link between how much company bosses are paid and what its financial performance it. Average pay packets for Britain’s bosses at the country’s 350 biggest firms was £1.9 million in 2014, according to the latest figures.
That is a staggering rise of 82 per cent over just 11 years, according to the Lancaster University Management School study. However, performance, which was measured on return on capital invested was less than one per cent during that time period, concluded study authors. Researchers said their findings suggested there was what they described as a “material disconnect” when it came to big business.
The report was commissioned by investment association CFA UK, which said the rise in wages was down to performance-based pay. Authors also suggested that methods used to gauge performance, such as shareholder return and earnings per share growth, were too short term a way of looking at the situation.
It suggested that a “more refined discussion” was needed about performance measures. Following the report’s release, Will Goodhart, head of CFA UK, said: “Too few of today’s popular approaches … genuinely align senior executives’ pay with the economic value that they create.”
Bosses working within healthcare were best paid, making an average of £2.9 million, while those in the oil and gas sectors were on £2.2 million and telecommunications bosses were making £2.1 million. Even those in the lowest paid sectors were still making huge sums per year. CEOs in technology made £1.3 million while those in industrials were earning £1.1 million.
This latest piece of research follows a government promise to make firms justify high levels of pay given to bosses. Currently, Prime Minister Theresa May earns £143,462 per year, which is far short of that earned by bosses of the country’s biggest companies. Mrs May has said she is considering measures including giving shareholders more power to veto big pay awards.