FTSE 100 CEOs are 'mediocre' with 'absurdly high' pay

FTSE 100 CEOs are 'mediocre' with 'absurdly high' pay

A study has shined a light on the spiralling pay of those at the top of the company tree.

A research paper by the London School of Economics (LSE) interviewed ten international hiring companies who were behind 70-90% of CEO appointments in recent years. The recruiters agreed that for every appointment, another 100 candidates could have filled the position just as well, and that the successful applicant was normally “mediocre.”  

They continued to say that the executive jobs market has become so skewed that it would be the death knell of a career to work for less.

The study’s authors wrote: “If one were to offer to do the job for less, would that tip the decision in his or her favour? All the headhunters agreed that this would be a poor strategy.

“Indeed, it might be that asking for a larger remuneration would have a positive effect in securing the appointment.

“There was almost universal agreement among the search firms that levels of remuneration for CEOs in large UK non-financial firms [is] absurdly high. All the interviews supported the notion of an arbitrary norm for pay, which almost all firms felt was grossly and inappropriately high … The general view of search firms is that a lower norm would not materially affect what happens.”

One headhunter said: “I think there are an awful lot of FTSE 100 CEOs who are pretty mediocre.”

“I think that the wage drift over the past ten years, or the salary drift, has been inexcusable, incomprehensible, and it is very serious for the social fabric of the country”, said another.

Max Steuer, Reader Emeritus at the LSE and author of a new research paper titled ‘Headhunter Methods for CEO Selection’, said: “In Denmark and other continental countries, the CEOs don’t get this high pay but they don’t seem to leave. The idea that if their pay were lower, British executives could show up in New York and say we would like to have your jobs, is a little implausible. I think the best way of thinking about it is that performance plays very little role in the selection process. Contrary to people saying these chief executives are ‘unusually able’, we don’t find any evidence of that.

“I am a great defender of capitalism and the market and what worries me about all this is that it threatens to erode the market.”

Steuer’s study was published in the Journal of General Management.

Stefan Stern, Director of the High Pay Centre, added: “There is much less of a ‘global market’ than people claim. The problem here is really systemic. It’s not just the headhunters’ fault. Institutional investors, company remuneration committees, pay consultancies and CEOs themselves could all show greater restraint.

“Having employee representatives involved in this process could help. Some top bosses, it seems, are keen to manage all their costs – except the cost of employing them.”

Earlier this year the remuneration of FTSE 100 CEOs hit the headlines after their average pay for 2014 was revealed to be £4.96million. The news resulted in much criticism, but was also defend in some corners. The hear case for high executive pay, click here.  

What do you think? Are FTSE 100 CEOs overpaid? Or do they deserve what they earn? 


Comments (2)

  • Ben
    Mon, 4 Apr 2016 5:28pm BST
    Does it really matter what CEOs are paid? What do you think the companies will do with the money if they're not paying it to CEOs? They're not going to donate it to charity, it will go to shareholders, other execs etc. If won't benefit the man on the street. At least with a high wage comes a (usually) high tax contribution from the employee. I, for one, think if they get to that level they've probably earned it.
  • Lone Voice
    Lone Voice
    Mon, 7 Mar 2016 4:04pm GMT
    I agree with this. It is something that I recognised a long time ago. If there are no serious problems with this research paper, then it needs to be followed up. If there is no correlation between pay and performance, how can companies recruit the best candidates? Why do UK plcs recruit mediocre candidates? Does it lead to sub-optimal performance by these companies? Are there examples of more effective approaches to recruitment abroad? Are UK companies receptive to improvements with their recruitment?

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