CEO pay has risen 82% in 13 years but companies have only returned 1% in ‘economic profit’

Pay for corporate chief executives has increased by 82% in the past 13 years, but the average company generated less than 1% return for investors, according to a report by the CFA Institute.

The median CEO at a FTSE-350 firm earned £1.5 million, with pay increasing on “an otherwise linear trend halted only by the financial crisis in 2008-2009 when pay levels slipped back to 2006 levels,” the organisation said.

The report calculated the average “economic profits” of companies, which takes into account the returns for investors minus the average cost of raising funds.

“Despite relentless pressure from regulators and governance reformers over the last two decades to ensure closer alignment between executive pay and performance, the association between CEO pay and fundamental value creation in the UK remains weak,” the CFA Institute said.

The CEOs of Britain’s biggest companies earned an average of £5.5 million in 2015, according to a report from the High Pay Centre in August, up 10% on the previous year.

The report found that the average pay of a FTSE 100 CEO was 129 times greater than that of their employees in 2015. The median pay packet of £4 million is 144 times that of the average Briton, which is around £28,000.

The disparity has turned CEO pay into a political issue.

Will Goodhart, chief executive of CFA UK, said: "Remuneration committees have spent more time than ever before this year in reaching out to shareholders and stakeholders to discuss compensation structures.

"There is an intense focus on pay levels coupled with calls to find better ways of aligning senior executives' incentives with long-term value creation, which for our members is more often measured through economic profit than through accounting profit," Goodhart said.

Prime Minister Theresa May has proposed to introduce binding shareholder votes on CEO pay every year for each company.

The policy was called "a disproportionate response" to the problem of high executive remuneration, a report from research group Big Innovation Centre said earlier this month.

The report, backed by Andy Haldane, the Bank of England's chief economist, said the policy "would be likely to have many negative unintended consequences."

It also criticised plans to publish pay ratios between CEOs and average employees, saying it does not account for natural disparities in pay in industries such as retail.