What do CEOs and premiership footballers have in common?
Probably a lot of things relating to talent, mindset and competitive edge however, the most polarising common trait are their astronomically high salaries. But what are the driving factors behind the remuneration of the person responsible for a company’s growth and success?
It’s the 4th January, 2024, just before 1pm. The time when the High Pay Centre estimated that FTSE 100 CEOs’ earnings for this year would surpass the median UK worker’s full time annual salary.
This year’s Median FTSE 100 CEO pay (excluding pension) was £3.81 million, 109 times the median full time worker’s pay of £34,963, representing a 9.5% increase on median CEO pay levels as of March 2023, while the median worker’s pay has increased by 6%.
Naturally to hit such a significant milestone so early in the year rightly attracts public scrutiny but how did we get here and is it so simple as just having the job of ‘being in charge’?
To answer this question, let’s begin with getting a historical context on what key factors first instigated the increase in CEO compensation.
Shareholder Capitalism
It was in the 1980s that we first saw the emergence of a new CEO key performance indicator: to deliver shareholder value.As a result, CEOs who successfully increased share prices received lucrative paypackets in the form of large stock and option grants.
Since then executive compensation professionals have consistently strived to “align the interests of management with those of shareholders”and have been compensated accordingly.
Celebrity Status
It was around the same time we also saw the emergence of high-profile leaders like Richard Branson of Virgin and Lee Iacocca of Chrysler. Otherwise known as the CEO celebrity phenomenon, they were the first of many to become household names.
These CEOs achieved celebrity status, not just for their business achievements but also for their public personas, media presence, and, in some cases, their influence on culture and society.
Coupling their success stories with media attention further elevated their status to the A-list and they were compensated accordingly.
Now names like Elon Musk, Steven Barlett and Jeff Bezos are renowned public figures in the media spotlight, as well as being CEOs.
The War for Talent
In 1997, management consultant heavyweight Mckinsey published their groundbreaking study citing the “war for talent” as a strategic business challenge and a critical driver of corporate performance.
As demand for being able to attract top talent became increasingly competitive, companies commenced pulling out all the stops to ensure they could make the highest bid to beat the competition to the best executive.
Leaders were fast becoming highly sought after and could command premium salaries as a result.
It’s also worth noting that compared with the rest of the world, CEOs of UK companies are paid well below the global market rate. In the US, a CEO can command a salary 2.25 times higher in comparison. As a result the UK is cultivating a pool of C-Suite talent for the US executive recruiters to fish from.
The Role of The Modern Day CEO
With power comes great responsibility, but what aspects of the role of a CEO are the drivers behind salary trends.
Simply managing the board and customer relationships and overseeing financials and risk management are just a small part of the complexities of the role of a modern day CEO.
Today’s CEO is responsible for setting and executing the company’s strategic vision, leading the executive team, and ensuring operational efficiency and financial health. They oversee resource allocation, performance monitoring, and intricate stakeholder engagement across the board, investors, customers, and employees. They ensure compliance with legal and regulatory standards, manage risks, and drive innovation and growth, while fostering a positive diverse corporate culture and ethical standards. They’re required to act as the public face of the company, steering it towards long-term success and sustainability and navigating media scrutiny both positive and negative.
Should the company fail, then it is frequently the CEO that must fall on their sword.
Speaking about her role on an episode of BBC Radio 4’s Desert Island Discs, CEO of Aviva, Amanda Blanc said:
“I would like to say that you can have a work/life balance. But, genuinely, you live, breathe, sleep, eat it. You think about it constantly. It’s all-encompassing.”
Certainly only a select few are able to make the immense personal sacrifice while weathering the stresses and strains of the job.
Of course it would be remiss of me not to flag that, as someone who’s built a career and a business executing numerous CEO search placements, when it comes to discussing CEO salaries I have skin in the game.
Transparency around pay is crucial, it improves equality and informs accurate benchmarking.
Similarly public scrutiny of a CEO’s actions promotes accountability, transparency, ethical behaviour, and responsible decision-making, which are essential for the health and success of businesses and their broader impact on society
When appointing a new CEO, a business is effectively placing their reputation and their future success and survival into the hands of one person. If someone is able to legitimately deliver on these then, ethical discourse aside, money talks and the competition is only getting fiercer.
