By 2022, that figure had risen to 124 times.

That is a huge shift in a relatively short period of time, and it raises an obvious question. What actually changed?

A recent research paper looking at UK CEO pay between 1968 and 2022 points to a mix of bonuses, stock options, tax changes and company benchmarking as some of the biggest reasons behind the rise.

The paper tracks how executive compensation changed over more than five decades and how the gap between top executives and average UK salaries became much wider over time.

CEO pay used to look very different

Back in the late 1960s, CEO compensation was much simpler than it is today.

Most executives were paid through a salary, pension and benefits package. There were bonuses, but they were nowhere near as large or complicated as modern executive reward schemes.

Over time, companies started shifting towards performance related pay. Bonuses became larger, share options became more common and Long Term Incentive Plans started playing a major role.

By 2015, Long Term Incentive Plans made up 47 percent of total CEO reward.

For most workers, pay is still mostly about salary and monthly take home pay. Executive pay packages now work very differently.

The American influence on UK executive pay

One of the biggest turning points came during the 1980s.

UK companies increasingly copied the American approach to executive compensation, especially the use of stock options.

The idea behind this was fairly straightforward. If CEOs helped increase shareholder value, they should personally benefit from that growth.

Supporters argued this would encourage better company performance.

Critics argued it encouraged short term thinking and pushed executive bonuses far beyond normal salary growth.

Either way, total CEO pay started climbing much faster than average UK earnings.

Tax changes also played a role

Another important factor was taxation.

In 1968, the highest earners in the UK faced a top marginal tax rate of 91.25 percent.

Over the following decades, top tax rates fell sharply. That made large executive packages far more valuable after tax and reduced one of the old limits on extremely high pay.

For ordinary workers, changes in income tax mainly affect monthly take home pay. For executives earning millions through bonuses and shares, lower tax rates had a much bigger financial impact.

Why transparency did not slow things down

You might assume that publishing executive salaries would help control excessive pay.

The research suggests the opposite often happened.

Once companies could see what other CEOs were earning, many boards started benchmarking against competitors. Very few wanted their CEO to appear below average.

That created a steady upward pressure on pay.

The paper describes this as a kind of ratchet effect. Executive salaries moved upwards far more often than they moved down.

Why investors struggled to stop rising pay

The paper also looks at why institutional investors often failed to challenge large pay packages.

Part of the problem comes down to incentives.

A large investment fund may only own a small percentage of a company. Organising a serious challenge to executive bonuses takes time, effort and money. The direct financial benefit to one investor may be relatively small.

As a result, even when shareholders disliked certain pay packages, large scale opposition was often limited.

What this says about UK wage inequality

The numbers themselves are difficult to ignore.

In 1968, median CEO pay was £23,000 while average national earnings were £788.

By 2022, median CEO pay had reached £3.91 million compared with average annual earnings of £31,616.

That does not just reflect inflation. It shows how differently executive compensation has grown compared with ordinary wages.

For many people in the UK, conversations about earnings focus on:

• salary increases
• inflation
• tax bands
• pension contributions
• monthly take home pay

Executive pay has followed a completely different path, shaped heavily by bonuses, shares and long term incentives.

Compare your salary and take home pay

Curious how your income compares after tax?

You can use our:

• UK Salary Calculator
• Take Home Pay Calculator
• Bonus Tax Calculator

to estimate your real monthly earnings and see how tax affects your pay.

FAQ

How much do UK CEOs earn compared to average workers?

In 1968, median CEO pay was around 30 times average UK earnings. By 2022, it had risen to 124 times average earnings.

Why has UK CEO pay increased so much?

The research points to several major factors including stock options, bonuses, lower top tax rates and companies benchmarking against competitor salaries.

What are Long Term Incentive Plans?

Long Term Incentive Plans, often called LTIPs, reward executives with shares or bonuses tied to company performance over multiple years.

Did pay transparency reduce CEO salaries?

Not really. Public disclosure often encouraged companies to compare themselves with higher paying firms, which helped push executive pay upwards.

Source

This article is based on the research paper CEO Pay in the United Kingdom, 1968 to 2022 published in Business History by Alexander Pepper.

In 1968, the boss of a major UK company earned around 30 times the average worker.