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News: FTSE CEO pay rises 'cool off', but wage inequality continues to heat up

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17th Aug 2012
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Although pay rises for FTSE 100 chief executives may be “cooling off”, wage inequalities between high and middle and low earners still appear to be heating up.

According to research from the Incomes Data Service, earnings growth among the UK’s top bosses slowed over the last year to a median of 8.5% lower than it was in October 2011 – although pay rises still leapt a huge four times higher than the average private sector wage increase. Bonuses also fell by around 2% to an average of £670,000. Steve Tatton, editor of the IDS Executive Compensation Review, said: “Renumeration committee members have now realised that their decisions will be scrutinised very closely by shareholders and the media…No longer, it appears, do renumeration committees and directors have a free hand, in the words of some, ‘to pay themselves what they wish.” Instead shareholders were now demanding to know what they were paying for and there had been “definitive signs of cooling off in executive pay awards” since the second half of 2011, he added. The same was not true of the pay gap between the UK’s richest and poorest, however. According to a report by the TUC, an unprecedented squeeze on living standards could be explained by two key factors. Growing pay gap Firstly, the “share of the economy going into wages has fallen since the late 1970s”, it said. Secondly, the share of wages going to middle and low earners “has fallen, whilst those at the top have taken an ever larger slice”. For instance, the percentage of earnings going to middle income households dropped from about 30% in 1977 to around 22% in 2008 due to the changing structure of the economy and its decreasing reliance on manufacturing in favour of financial services. This shift has created “far more high skill, very highly paid jobs (boosting the share of top earners)”, whilst the UK has lost ‘traditional’ middle income jobs, the report said. To make matters worse, earnings for those in lower and middle income jobs have risen more slowly than for those in higher occupational groups. This was partly because of less collective bargaining and partly because “the UK’s rules on corporate governance and pay setting at the very top have created a culture where excessive earnings for a significant minority of high earners has become the norm”. But because median real wages had stagnated from 2003 onwards while the ratio of household debt to income had risen to the highest of any major economy, the UK was left “very vulnerable to shocks, resulting in a large recession in 2008/9 and an extremely weak recovery afterwards”, the report pointed out. This meant that “without a rebalancing towards wages, it is hard to see how any UK recovery can be sustained”, it concluded.

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