Bosses' pay rises faster as the wage gap widens

  • @davidprosserind

Executive pay is set to continue rising more quickly than the salaries earned by the majority of workers over the next 12 months, new research suggests, fuelling the controversy over the widening gap between those at the top of organisations and their staff.

Research from Pricewaterhouse Coopers (PwC) reveals that four-fifths of pay consultants specialising in executive pay expect the rewards offered to the executives of FTSE 350 companies to increase next year, with base pay set to rise between 2-4 per cent, ahead of the average salary increases expected for workers as a whole.

PwC has yet to publish details of executive pay increases during 2011, though anecdotal evidence suggests they have been rising at a similar rate. Last year, the average FTSE 350 executive got a 2.8 per cent pay increase, but was also likely to have received a significantly bigger bonus than previously – pay-outs rose 30 per cent for FTSE 100 directors.

In the coming year, there will be some executives who do not share in the windfalls, PwC said, with around 13 per cent of companies expected to freeze the pay of their senior staff. Bonus increases across the board are also expected to be smaller.

Nevertheless, the suggestion that executives are set to go on receiving larger pay rises than the staff who work for them will anger those who believe remuneration policies have become slanted towards the wealthy.

Vince Cable, the Business Secretary, has expressed concern about executive pay, with the average director of a British company now earning 69 times as much as his typical employee. The comparative figure in Sweden, for example, is only 34 times.

Mr Cable has already said he will table proposals aimed at addressing the discrepancy this autumn, while the High Pay Commission, an independent investigation into the same issues, is also due to report its findings.

Sean O'Hare, reward partner at PwC, said pay rises for executives would certainly provoke anger – but he added that the declining economic outlook could yet put those salary increases at risk, especially with investors now more inclined to hold companies to account on remuneration policies.

"Even moderate pay increases in line with inflation are likely to prove controversial given the building public and political pressure to address the widening gulf between the highest and lowest earners, compounded by tough economic conditions," Mr O'Hare said.

"But whether anticipated salary rises play out next year will depend on whether markets improve – increases that are not aligned to company and share price performance are likely to meet strong resistance from shareholders."

Mr O'Hare warned that there would be particular attention paid to the size of bonuses paid to executives – and not just in the banking sector.

Though the much-scrutinised financial services sector has lead the trend, pay and rewards experts say more-demanding targets for executive bonuses are increasingly common in many industries.

Clawback policies, which are also copied from the banks, are becoming more common too, with executives receiving as much as 30 per cent of their bonuses in deferred shares that can be taken back if performance does not prove enduring.