A scathing report published by the CIPD and the High Pay Centre has found that FTSE 100 companies have failed to improve board diversity in 2018, with just six female CEOs across these firms earning 32% less than their male counterparts.
Despite efforts to improve board diversity, the report said it is "disappointing" to see so few female CEOs and executive directors on the boards of FTSE 100 firms.
"Unless we start to see women in senior positions, progress in reducing the size of the gender pay gap will be slow," the report warned.
"In addition, research suggests that firms that lack gender diversity are often outperformed by those with more equal numbers of men and women. This ought to be of great concern to business."
Median salaries down but remain high
Overall the report found that median FTSE 100 CEO pay for the financial year ending 2018 fell to £3.46m from £3.97m in 2017.
According to Andrew Ninian, director of stewardship and corporate governance at the Investment Association, this is good news: "Investors have repeatedly highlighted their concerns with excessive CEO pay, so the fall in pay is a welcome sign that companies are beginning to listen.
"Shareholders play a key role in helping to drive change on executive pay and engage throughout the year with companies and their directors who set pay to make sure it reflects investor priorities.
"That engagement is clearly working, as in 2019, more than 50 companies have promised to cut their executive pensions because of a campaign by shareholders, while the increased number of votes against individual directors show that shareholders will hold them to account if a company's approach to pay is unacceptable."
However, CIPD and the High Pay Centre are not so convinced that this is truly the beginning of a downwards trend, as pay has been "bouncing up and down between a range of around £3.5m and £4m since 2011".
And even with pay falling below the £4m mark, the report suggested this level remains unjustifiably high, with CEOs being paid 117 times more than the median UK full-time worker, while the company performance, firm size and investor dissent have limited influence on the size of these pay packages.
"The excessive gap between the UK's highest and lowest earners is failing both business and society: it's not fair and it's undermining long-term business success," the report said.
Value for money
There is also little evidence of a link between CEO remuneration and the size or performance of their company, meaning the pay packages don't represent "value for money".
The CIPD's survey found that the generous rewards to chief executives did not necessarily result in positive changes for the employees, with 39% of employees saying their CEO's level of pay did not encourage them to go the extra mile for their employer, while only 17% said the opposite.
The report also noted: "While attention is focused on the CEO, other senior managers can be a significant cost to the business too. However, our analysis suggests that current reporting is inconsistent as to who the key decision-makers are and the explanation for why they get paid so much.
"Investors will want to know if this money is being spent wisely or could be better invested in research and development, or employee training."
Addressing the gap
To address the issues highlighted in the report, the CIPD and the High Pay Centre recommend extending reporting requirements to include key management personnel to improve transparency and called form companies to establish formal 'people and culture' committees in place of existing remuneration committees with a wider remit.
They also believe companies should ensure CEO pay "reflects both financial and non-financial performance measures such as indicators of diversity, talent management and employee well-being".
Finally, the report said firms should simplify the reward packaged of their CEOs to make sure they are linked to fewer and "more meaningful" measures of performance, after finding a lack of understanding among employees as to how CEOs' pay is calculated.