UK businesses are overpaying their CEOs, new research says

Companies that pay their CEOs modestly perform better financially, according to Vlerick Business School’s new research.

Vlerick’s survey examined pay rates and habits of CEOs and CFOs across 861 businesses in major stock indexes across Europe, including the UK’s FTSE 100 and 250.

Using a company’s performance data to calculate what the business should be paying its CEO, researchers found that organisations with better financial performance tended to pay their CEOs less than others.

The survey also revealed that UK companies in particular overpay their CEOs compared with other countries, and that there were more cases of CEO overpayment in businesses with more widely dispersed share ownership.

Taking into account fixed wage, short-term incentives, and share option grants, UK CEOs are paid 94 times more than the average worker at their firm. CEO pay in the UK had dropped slightly to a median of €4.3m, but this figure rose to €4.9m when adjusted for the effect of the Brexit vote on the British pound.

Professor Xavier Baeten, who conducted the study, said: “This paints a very clear picture showing that UK companies significantly overpay their CEOs in comparison to other major nations in the EU. They are not paid more because they perform better, but because, amongst other things, CEOs in the UK have more control over the company as a whole relative to European firms due to wider dispersion of share ownership.

“Taking everything into consideration it is clear that UK companies should look closely at how they pay their CEOs – not just how much but also how their pay packages are structured. The best performing companies in this study tended to pay their CEOs a little less, and they also tended to pay more of their package as fixed salary and less in the form of variable, share-based, remuneration.”