calculating marginal revenue product of the last worker

A frequent criticism of large UK businesses is that they have been too short-termist.

In a period when share prices in general rise rapidly – as we have seen over the past two years – executive pay tends to rise rapidly too. The incentive and bonus payments are often linked to the short-term performance of the company, as reflected in, for example, the company’s share price. Then there is the question of the non-salary element in executive pay. This has had the effect of ratcheting up executive pay. Membership of such committees consists of independent non-executive directors, but their degree of independence has frequently been called into question and there has been much criticism of such committees being influenced by their highest paying competitors or peers. Although Theresa May, in her campaign to become Prime Minister in 2016, promised to put workers on company boards, the government has since abandoned the idea.Įxecutive pay is awarded by remuneration committees. So why has the gap in pay widened so much? One reason is that there is no formal mechanism whereby workers can apply downward pressure on such awards. Such a system has been introduced in the USA this year. The annual figures will be for pay starting from the financial year beginning in 2019, which for most companies would mean the year from April 2019 to April 2020. In fact, under new legislation, companies with more than 250 employees must publish the ratio of the CEO’s total remuneration to the full-time equivalent pay of their UK employees on the 25th, 50th (median) and 75th percentiles. These huge pay increases are despite criticisms from shareholders and the government over excessive boardroom pay awards and the desire for more transparency. This brings the ratio of the mean pay of FTSE 100 CEOs to that of their employees to 145:1.

Given two huge pay increases for the CEOs of Persimmon and Melrose Industries of £47.1 million and £42.8 million respectively, the mean CEO pay rose even more – by 23%, from £4.58 million in 2016 to £5.66 million in 2017. By contrast, the median pay of full-time workers rose by just 2%. The median pay of chief executives of the FTSE 100 companies rose 11% in 2017 to £3.93 million per year, according to figures released by the High Pay Centre.

Calculating marginal revenue product of the last worker