The FT has published this weekend findings about the growing pay gap between CEOs and their staff. The article, entitled Top executives wage gaps stretches to 150 times that of the average worker, laments the growing gap and consequences to businesses in the UK.
Author David Oakley points out that this gap was only 47x in 1998 and 120x in 2009. Minding the gap can be important to a firm, its stakeholders and may be linked to performance in certain cases. The article quotes Luke Hildyard of the High Pay Centre saying "There is a danger that growing differential between a CEO's earnings and those of the average worker is demoralising to staff ... which then undermines company performance". The academic world, at least in part, agrees with this assessment. Core, Holthausen and Larcker (1998) find that firms with weaker governance structures also have higher remunerated CEOs and firms with greater agency problems typically underperform rivals in their study.
Particularly high on this scale is Martin Sorrell's compensation (WPP) at 800x average employee compensation levels. What do you think about this gap?
Reference: Core, J, Holthausen, R, and Larcker D. (1998). Corporate Governance, CEO Compensation, and Firm Performance. The Journal of Financial Economics. 51(1999). pp 371-406.
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