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Startups risk productivity losses if CEOs are paid too much

Written by Eric Johansson on Monday, 08 August 2016. Posted in Leadership, People

The CIPD warns entrepreneurs not to follow in big corporates’ footsteps as the High Pay Centre reveals that the average FTSE 100 CEO’s pay package has grown by 10.5% in one year

Startups risk productivity losses if CEOs are paid too much

Any entrepreneur worth their salt will tell you that maintaining high employee satisfaction is the key to being successful in business. And yet a new report from the High Pay Centre, a think tank that looks at top incomes, has revealed that the average FTSE 100 company pays its CEO 140 times more than its average employee, something experts warn can harm businesses in the long run.

The High Pay Centre, revealed that the average FTSE 100 CEO’s pay package jumped from £4.96m in 2014 to £5.48m in 2015. This 10.5% increase means the average ratio between these executives’ remuneration and that of their employees was 140:1 in 2015. The release of these figures follow a statement issued by Theresa May in July, in which she said: “There is an irrational, unhealthy and growing gap between what these companies pay their workers and what they pay their bosses.”

Stefan Stern, director of the High Pay Centre, welcomed May’s intervention. “There now seems to be political will and momentum behind attempts to reform top pay,” he said. “Businesses could save themselves a lot of grief and do something to restore their reputations if they listened to workers first before awarding these bumper pay packages.”

And the think tank is not alone in warning business leaders on the disadvantages of accepting overly lavish pay packages. “A recent CIPD study showed that six in ten of employees say that high levels of CEO pay in the UK demotivates them at work,” said Peter Cheese, chief executive at the CIPD, the professional association for human resource management professionals. “The message from employees is clear: ‘the more you take, the less we’ll give’. This kind of culture in the workplace is bad for both employers and employees.” He added that when executive pay isn’t linked to “performance or business outcomes, it undermines trust in business, not just from employees but from customers and other stakeholders.”

While entrepreneurs are welcome to reap the fruits of their hard labour, they should keep in mind that keeping their workforce happy can be more rewarding in the long run.

About the Author

Eric Johansson

As feature writer and resident Viking, Eric ensures EB is filled with engaging and eclectic entrepreneurial stories. While one of our freshest faces, he has sharpened his editorial teeth by writing about business, entertainment and fitness.

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