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News: widening executive pay gap over last forty years

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10th Apr 2013
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Company directors, including CEOs, have had pay increases almost twice the size of the average UK executive over the last 12 months, according to new salary data published today by XpertHR and the Chartered Management Institute.

According to the survey, these changes are mostly due to sharp percentage increases in bonus payments at the top levels, compared with previous years. Chief executives enjoyed pay rises five times higher than the average executive.

This means that CEOs earn 30 percent more than forecast on the basis of salaries recorded when the National Management Survey first took place 40 years ago.

Basic salaries plus bonuses rose three percent over the last year, the same as the year before. While the average basic salary for all directors increased by 2.7 percent, the figure jumps to 5.3 percent over the past year when bonuses are taken into account. This compares with a 2.1 percent salary and bonus rise for directors between 2011 and 2012.

CEO basic salaries rose by 1.8 percent, rising to 15.8 percent when bonuses are accounted for. Last year, figures showed a 0.5 percent basic salary plus bonus decrease for chief executives.

Ann Francke, Chief Executive of CMI, says: "It's hard to believe that company directors and CEOs have seen such a big leap in bonus payments when the UK's economic performance remains so sluggish. If organisations aren't performing, leaders shouldn't get these bumper rewards, especially when pay increases for all other management levels have been so much smaller."

The National Management Salary Survey, which surveyed over 43,000 executives in 180 UK organisations, marked its 40th year this year with a look back in time to the first results collated in 1973.

The gap between salaries of those at the top and junior executives has widened over the last four decades. Middle managers are now earning 28 percent less than the 1973 predictions – compared to 30 percent more for CEOs. In 1973, average salaries stood at £3,855 for a middle manager and £10,600 for a CEO, compared to £43,456 and £215,879 respectively today.

The data also revealed that employers’ struggles with recruitment are increasing year-on-year. Close to two thirds (64.7 percent) of employers experienced problems with staff recruitment over the last 12 months – up from 58.7 percent in 2012 and 48.9 percent in 2011. Finding managers with the right skills was identified as the biggest recruitment issue (76.4 percent), followed by competition for quality candidates (45.5 percent) and the salaries on offer (43.6 percent).

Ann Francke continued: "A loaf of bread that cost 11p in 1973 might cost you nearly fourteen times as much today. By comparison, the average CEO is taking home nearly 20 times as much as in 1973 and that's 30% more than we would have expected. The question is, do today's CEOs really add 30 percent more value? Those at the top have benefited from soaring pay over many years, while mid-level managers and others have been left behind. Compounded by this year's pay rises at the top, bosses run the risk that this pay gap will leave staff disillusioned and disengaged a time when motivated, engaged employees are vital for business success."

Mark Crail, head of salary surveys and HR benchmarking at XpertHR, says: "Through good times and bad, those at the very top have enjoyed pay rises over a period of 40 years that have opened up a massive gap, not just with workers on the shop floor but with middle and even relatively senior managers. In 1973 when we launched this survey, a typical chief executive earned less than three times as much as a middle manager; today they earn nearly five times as much. This isn't just a short-term boost for top executives, it's a big long-term change in society."

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