10% surge in CEO pay during 2023

By 1pm on Thursday 4th January, median FTSE 100 CEO’s earnings for 2024 will surpass the median annual salary for a full-time worker in the UK. Median FTSE 100 CEO pay (excluding pension) now stands at £3.81 million, 109 times the median full-time worker’s pay of £34,963. This is a rise of 9.5% over the last year. Last year the UK government scrapped the cap on bankers' bonuses. Is it time once again to revisit the debate over capping CEO earnings?

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Arguments for capping CEO pay:

• Reduce income inequality: Proponents argue that a cap would help address the widening gap between CEO pay and average worker wages, promoting a fairer distribution of income and wealth and reducing societal tensions.
• Long-term focus: Capping compensation could incentivize CEOs to prioritize long-term value creation for the company and its stakeholders, rather than short-term gains for bonuses or stock options.
• Alignment of interests: A cap could better align CEO pay with the interests of employees and shareholders, as excessive executive compensation can sometimes be perceived as unfair, especially during times of economic hardship or stagnant or falling real wages for many lower earners.
• Curb risk-taking: Limiting exorbitant pay packages could potentially discourage CEOs from taking excessive risks that could endanger the company or its employees.
• Promote social justice: In a broader sense, some argue that capping CEO pay aligns with principles of social justice and fairness, ensuring that exceptional rewards are not solely concentrated at the very top of the economic pyramid.

Arguments against capping CEO pay:

• Talent acquisition: Critics argue that caps could dissuade highly talented individuals from taking on CEO roles, potentially harming companies' competitiveness and ability to attract top leadership.
• Economic impact: Opponents suggest that caps could stifle economic growth and innovation, as companies might be less willing to invest or take risks without the incentive of high potential rewards for CEOs.
• Unintended consequences: Capping CEO pay could lead to unintended consequences, such as increased bureaucracy or a shift towards alternative forms of compensation that are less transparent or accountable.
• Implementation challenges: Enforcing a cap effectively across different industries and company sizes could be complex and lead to practical challenges.
• Ineffectiveness for inequality: Some argue that capping CEO pay alone might not be the most effective way to address broader issues of income inequality, as wealth disparity stems from various factors beyond executive compensation.

Ultimately, the debate about capping CEO pay is complex and nuanced, with compelling arguments on both sides. It's important to consider the potential economic, social, and ethical implications of such a policy, while also acknowledging the concerns surrounding talent acquisition and potential unintended consequences. Finding the right balance between addressing income inequality and maintaining economic competitiveness remains a crucial challenge in today's society.