Soundbite journalism once again.
The very nature of CEO pay is that at leat 2/3 of it is significantly variable - both up and down. That is the very principle of performance related pay for senior people -
a large proportion is "at risk". On the other hand, In bad years the pay overall of the average worker will be relatively constant compared to previous years, and will also vary little in good years.
Consequently in bad years the pay-ratio will drop massively, and in good years it will rise significantly.
Simon Jack has clearly misunderstood the situation and jumped to unfounded and badly thought out conclusion that only two choices can exist.
An alternative would be for very senior people to be paid exactly the same amount whatever the business results (just like average staff) - this would maintain a constant pay-ratio but would not sit well with investors and shareholders who will insist on some variability.
Victoria - you have taken the time to cut and paste this quote - what views can you share with us on this?

In reply to Ray:

Here's my non evidence-based personal view - While it makes sense to attract senior talent with pay and benefits, I think that the vast difference in quality of life (or possibly lifestyle) between top earners and average/low paid workers is unfortunate.

There are costs of living that everyone needs to be able to afford and not everyone can, for various reasons. The role of a CEO is challenging and requires a vast range of skills but that could be said of many other roles. When I consider the struggles of low paid or average earners to make ends meet, I wonder about the ethics of how pay divided across an organisation. (Feel free to tell me how this is done.)

Hard work and excellent performance should be rewarded at all levels but a part of me sees some social injustice in a wealthy nation where there is so much poverty. Is CEO pay to blame? No, but there are organisations who consider financial wellbeing to be an important part of their health and wellbeing agenda and I'm glad to say CIPD is one of them. We've recently introduced an employee benefit (Neyber) which educates and supports people to better manage finances and can offer salary-deducted low APR loans to help clear debt. So while a part of me thinks that the gap between average pay and CEO pay could do with shrinking, there are lots of other things organisations can do to show that they care about the financial wellbeing of their people.

In reply to Victoria Dmochowski:

The journalism standards would seem to equate with those of its grammar. To loathe is a verb about hating intensely whereas loath is an adjective about being unwilling.

In reply to Victoria Dmochowski:

In many large organisations, giving workers some of the CEO's salary would only result in a few pounds more per employee.

In reply to Victoria Dmochowski:

Thanks for the response Victoria.

An interesting exercise in this context is to look at the structure of a large multinational and build an upwards moving map of job from the front line operator/accounts clerk/receptionist to the Group CEO and attach a salary to each of these jobs that they think will :

• avoid bancrupting the company - the real risk when you have very low skills jobs in people intensive businesses with low margins (emptying waste bins, for example);
• be positioned so as to ensure a ready availability of these skills at all times - for low skilled jobs, can also involve high turnover with training/recruitment times in hours ; for rare and high value added skills (tax lawyer, geolphysicist in oil business...) the other extgreme can apply

Running up the tree you could imagine

• an accounts clerk in a single site
• an accounts payable supervisor at the site
• an accountant for the site (say £50m turnover)
• a general manager for the site or a CFO covering many sites within a country
• A country General Manager of say £2billion turnover
• A regional General Manager - covering say Europe and Middle East with £25billion turnover and probably also a member of the company's executive committee, but not on the main board
• A Group CFO who is also a Board member with overall turnover of say £90billion, and responsible for a financial function of 5.000 people worldwide
• The CEO in this same group of say 150.000 people across 87 different countries, legislations, cultures and probably many varying business models

answers on a postcard please..... :-)

PS - it is also interesting to try to develop an argument as to why it is socially acceptable for footballers, disk-jockeys, pop musicians to be extremely highly paid compared to groundsmen, roadies etc.

In reply to Ray:

On an evidence-based note, the CIPD has been working with the High Pay Centre (an independent non-party think tank), to work towards reform in executive pay systems and are currently undertaking research with them on remuneration committees.

I've pasted some of an article I read this morning about Fat Cat Day:

'Charles Cotton, Senior Reward and Performance Adviser at the CIPD, said: “When considering executive and employee pay, reward decisions must be principles-led, evidence based and outcome-driven. It should be aligned to both financial and non-financial measures of business success, reflecting both short and long-term performance. Executive pay should also be considered alongside how the wider workforce is being rewarded. In a year when real earnings will have fallen for many, excessive reward at the top will be strongly felt by the rest of the workforce.”

Previous CIPD research has shown that excessive CEO pay can have a damaging effect on the workforce. In its 2015 research report ‘The view from below: What employees really think about their CEO’s pay packet’, a CIPD survey of more than 1000 working adults found that:

• 71% agreed that CEO pay levels in the UK are generally too high

• 60% agree that CEO pay levels in the UK demotivate employees

• 54% agree that CEO pay levels in the UK are bad for an organisation’s reputation

As part of efforts to enhance trust in business and improve corporate governance in the UK, the CIPD and High Pay Centre recently welcomed the Government’s corporate governance reforms and the Financial Reporting Council’s proposals for a revised UK Corporate Governance Code. As part of the Government’s reforms, new laws will require around 900 listed companies to annually publish and justify the pay ratio between chief executives and their average worker.

The reforms also include the introduction of the world’s first public register of listed companies where more than a fifth of investors have objected to executive annual pay packages The first public register was published by the Investment Association on December 19 2017 and includes more than a fifth of the FTSE 100. Companies on the register include fashion label Burberry, retailers Sports Direct and Morrisons, broadcaster Sky and the advertising company WPP.'

A few weeks ago CIPD appointed a member of staff (following a selection process) to our remuneration committee, reporting in to our board. Evidence suggests that few boards incorporate HR directors – or a director with an HR background – at board level. If someone with a HR background (someone who understands people management and workforce data) had a seat at the board table, this would also impact the way remuneration of CEOs and the rest of the workforce is implemented across an organisation. Perhaps that's some evidence to back up my earlier viewpoint!

In reply to Victoria Dmochowski:

In PLC's I'd say that the social 'injustice' is nothing, or very little to do with the pay of CEO's etc.,

The dividend given to the shareholders is probably far far more than the CEO's salary.

Making or giving shares available to staff would be more of an incentive too.

The thinking here is all about face, in any case.

As a general rule, an employer seeks to pay an employee the least amount possible to obtain the required skill-set, motivate the provision of that skill-set profitably and retain the employee for a period long enough to deliver a comfortable return on investment. This tends to be what is meant be "the going rate".

If I can get the productivity I'm looking for for £17k, then why would I pay £20k for the same productivity?

This principle applies in general terms to 99% of any given workforce but, for some reason, when we get to CEO compensation, larger companies seem to lose their minds. Instead of seeking to pay the going rate, they seem to compete to bag the biggest trophy-leader available, like a rich American dentist looking to put a lion-skin rug on his hearth, they are prepared to pay any sum to bring down their chosen prey.

Similarly, those business leaders who find themselves in this lofty position, compete for the largest trophy salary and no-strings reward package. This results in sums changing hands on a footballer scale and more, totally disproportionate to the value of the skills on offer or the productivity being returned to the organization but purely as some kind of bizarre marketing strategy, posing with their new trophy like they just landed a 2000-pound Marlin (yes, I Googled "how heavy is a marlin?").

Money is nice, of course is it. But beyond a certain point it ceases to be income and just becomes a childish way of keeping score.

It's not about the ratio of the average worker's wage to the CEO's. It's just about whether CEOs are being compensated in a rational way for their value to the company. And, at the moment, companies in the FTSE400 and their ilk seem largely to have leapt headlong into irrationality.

In reply to Robey:

What annoys me is when you have someone like Jes Staley of Barclays, behaving completely inappropriately - and something people in more junior managerial roles would almost certainly lose their job over - yet his punishment is that his bonus for 2016 is reduced by £500,000. Yes, he got fined the equivalent of 10% of his salary (which was a reduction for paying early! Ridiculous in itself) but this is a man who earned £4.2M that year and no doubt has earned even more since, and no doubt was earning 7 figures for many years previously.

Is that really a punishment? How hard is that really hitting him? And more to the point when someone can lose over £1 million in earnings and still be extremely wealthy, you have to wonder is this person THAT much better, does he add THAT much more value to the company, than people earning more routine salaries? I find it hard to believe.