The bosses of Britain’s blue-chip companies are raking it in, having seen their pay rise to the highest level on record last year, according to figures released by the High Pay Centre.

The data shows that median pay for a FTSE 100 chief executive increased from £4.1m in 2022 to £4.19m in 2023.

AstraZeneca’s Pascal Soriot, consistently the best-paid chief executive among FTSE 100 bosses, received a £16.85m package last year, while Emma Walmsley, head of the rival drugmaker GSK, got £12.72m. Others on the top earners’ table include Rolls-Royce’s Tufan Erginbilgiç, who was awarded £13.61m, and HSBC’s outgoing boss Noel Quinn, who received £10.64m.

As a result, the median pay for a FTSE 100 chief executive stood at 120 times the average salary of a full-time worker in the UK last year. While that ratio was down slightly from 124:1 in 2022, it was higher than the 108:1 in 2021.

So how did we get here, and can anything be done about it?

How has CEO pay got so high?

The High Pay Centre blames the gap on a number of factors, including the decline of trade union membership, low levels of worker participation in business decision-making and a business culture that puts the interests of investors before workers, customers, suppliers and other stakeholders.

However, those in the corporate world point to growing anxiety, particularly post-Brexit, about the UK’s ability to compete on the world stage, arguing that talented executives need to be well remunerated to stop them defecting to the US, where pay is much higher.

The payouts for FTSE 100 bosses pale in comparison to those of senior US executives. Sundar Pichai, the boss of Google parent company Alphabet, received a $226m (£177m) package last year, and Nikesh Arora, head of the cybersecurity company Palo Alto Networks, was on $151m.

In 2022 average pay for UK execs was a fifth of what their US counterparts were getting. Bosses at the London Stock Exchange argue that his differential is particularly worrying for big international companies that compete for business in foreign markets, but are paid “significantly below global benchmarks”.

That is amplified for industries such as defence, where companies say they have to compete for talent in a much smaller pool, owing to national security clearances. Rio Tinto’s attempt to poach the boss of BAE Systems, Charles Woodburn, in 2020 caused enough concern that BAE gave him an extra £2m to secure his “enthusiastic and enduring commitment”. Last year Woodburn scooped £13.45m.

How is pay decided on?

Executive pay can be complicated, with base salaries making up only part of the package. The biggest portion is usually bonuses, which are usually a mix of cash and shares and are broken up into annual rewards based on internal targets and so-called long-term incentives that measure performance over a period of time.

Executives also receive pensions – or cash in lieu of retirement schemes – and extra benefits such as a company car or chauffeur, medical insurance, and life assurance. New executives often negotiate an extra payout if they end up having to forgo a pot of shares and bonuses built up during their previous roles, known as a “golden hello”. There are also golden handcuffs – incentives to discourage someone from leaving – and golden goodbyes to thank or expedite an exiting exec.

All these payouts are set by a company’s remuneration committee, made up of members of its board of directors, who often use pay consultants to define the formulas, which are made public in a company’s annual report.

What’s so bad about high pay?

Unions have long argued that huge packages for bosses distort the market and deny those lower down the ladder their fair share. The TUC general secretary, Paul Nowak, described the latest High Pay Centre data as “disappointing”, calling on the government to “redesign pay setting structures to reflect the contribution that all staff make to company success”.

Millions of households have suffered the biggest hit to disposable incomes since records began in the 1950s as average wages struggled to keep pace with soaring inflation over the past three years.

Hannah Peaker, director of policy at the New Economics Foundation thinktank, said that while most people expect executives to be well paid, their pay packages had “spiralled out of control” and show “how inequality is baked into our current economic model”.

There is also the argument that the money spent on paying executives could instead be used to upskill or fund a more competitive workforce, boosting productivity and overall corporate performance.

“This isn’t a fair distribution of the wealth workers are responsible for generating,” Peaker said. “We need a new approach to ensure everyone can benefit from the wealth they help create, including promoting more democratic forms of ownership, like coops and publicly owned utilities, and boosting the rights of trade unions and workers’ bargaining power.” 

Can anything be done to rein it in?

Most of the power lies with a company’s own shareholders. In the UK, shareholders are given a say on executive compensation policies, which outline how bosses will be paid in future. Those are put to a binding shareholder vote every three years.

In the interim, shareholders can also vote against annual pay reports, which reflect payouts made for the previous year. However, these are only advisory, meaning a company does not have to change any of their pay decisions if the resolution fails to pass at their AGM.

However, shareholders have to be convinced that the high pay is detrimental, often to the company’s reputation or overall cost.

Last year 60% of investors at Unilever voted against the incoming chief executive Hein Schumacher’s pay package, which included a base salary of €1.9m, a fifth higher than his predecessor’s, and the education group Pearson suffered a 46% revolt over plans to increase maximum bonus payouts from 200% to 300% of executive salaries.

Meanwhile, executives who find themselves at the centre of controversies and scandals can also have pay clawed back or future payouts cancelled. Last year, NatWest scrappedalmost £7.6m in potential payouts to Alison Rose, its former chief executive, who was forced to resign over a scandal linked to the closure of Nigel Farage’s bank accounts.

The TUC is calling on the government to bring in measures that could help to curb executive pay as part of the “new deal for working people” that it promised in its election manifesto. “These could include workforce representatives on remuneration committees and new rules to make sure that bonus and incentive schemes are open to all staff on the same terms, instead of just executives,” said Nowak.