The research reported that the median pay for a CEO of a FTSE-100 company increased 2.2% to 4.19 million pounds in 2023, though it added that CEO pay growth had slowed compared with the previous two years.

The study found that the median salary of a full-time British worker was 120 times lower than that of a FTSE-100 CEO. Among the British workers to go on strike in 2024 over wages or working conditions are train drivers and family physicians.

“The increase in average CEO pay reflects a small number of companies making really large pay awards rather than big increases across the board,” Luke Hildyard, director of the High Pay Centre said.

“A business culture that puts the interests of investors before workers, customers, suppliers and other stakeholders,” Hildyard continued.

In recent years, shareholder anger over executive compensation at Britain’s top companies has been particularly focused on the disparity between average worker earnings and CEO pay.

In order to prevent top talent from leaving for nations where pay is less of a contentious issue, some fund managers in the United Kingdom are supporting proposals to give boards more leeway when it comes to compensating them.

Pascal Soriot of AstraZeneca, a pharmaceutical company, was the highest-paid British CEO, taking home 16.85 million pounds, according to the High Pay Centre.

Using company financial disclosures, the research revealed that Erik Engstrom of information and analytics group RELX came in second with 13.64 million pounds. And the third highest-paying CEO is Albert Manifold of CRH with 11.68 million pounds.

The increase in average pay for CEOs was mainly influenced by a small group of companies who significantly raised rewards, rather than large increases from a range of companies, according to the High Pay Centre.

Of the 54 companies which paid their CEO more in 2023, the three largest percentage increases were at Rolls-Royce (an increase of 255%), Reckitt (192%) and Haleon (151%).

“While it’s much too early to describe this as a trend, it is interesting that a small number of large companies made very large CEO pay awards this year, given the recent debate about executive pay,” said the High Pay Centre.

In order to recruit and retain world-class talent, influential industrial voices have been arguing that British firms need to raise CEO pay. On the other hand, the Centre for Pay notes that “the number of United Kingdom-headquartered companies that could be considered globally significant is low”.

Barely a third of FTSE 100 companies would be large enough to qualify for the US’ S&P 500 index. Some even argue that pay levels should therefore reflect this disparity.

According to data released by the United States Labour Union Federation AFL-CIO earlier in August 2024, S&P 500 CEOs made USD 16.7 million (15.30 million euro) on average in 2022. The Centre for High Pay also outlined practical issues surrounding very high rewards for CEOs, notably that: “Excessive spending on top earners … makes it harder to fund pay increases for the wider UK workforce.”

Pascal Soriot’s salary, meanwhile, is 482 times the pay of the median British full-time worker. In order to manage these disparities, the Centre for High Pay has published a list of recommendations for the Keir Starmer government. One suggestion has been to improve pay transparency, ensuring that private and public companies publish the salaries of their highest earners.

“The think tank also noted that workers should have easily accessible information about their relative position on pay, meaning that they know how their salary relates to the earnings of colleagues performing similar roles,” reported EuroNews.

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The government’s action followed a rise in official interest rates that led to record earnings for Italian banks. The government now claims that the money will go toward tax reduction and assistance for mortgage holders. The levy on their profits, according to Italian banks, will be “significantly detrimental” to the industry. And after the objections, the finance ministry said the tax would be capped at 0.1% of assets, while reiterating the commitment to support businesses and people suffering due to the higher borrowing costs.

The tax will apply to the net interest income that comes from the gap between the banks’ lending and deposit rates.

According to reports, the levy will generate about €2 billion (£1.7 billion), which will go toward supporting families who are suffering from higher interest rates.

However, some European banks have termed the move bad news for the sector.

Shares in the country’s two largest banks, Intesa Sanpaolo and UniCredit, saw valuation drops, as the government announced the move. Italy’s third-largest bank Banco BPM and the state-owned Monte dei Paschi di Siena also witnessed market bloodbaths. The situation hasn’t been different for the private banks as well. The fallout has impacted the banking sectors of Germany and France too.

What is a Windfall Tax?

A windfall tax is imposed on unexpected/extraordinary profits or gains earned by individuals, businesses, or industries due to specific economic circumstances. It is often considered when a company or sector experiences an unusually large increase in profits that may be perceived as excessive or unjustified.

The rationale behind implementing a windfall tax is to capture a portion of these windfall gains and redistribute them for the ‘public good’. Windfall taxes are typically levied on top of regular corporate or income taxes and are meant to mitigate the potential negative effects of excessive profits on economic equity and fairness.

The implementation of a windfall tax can be a matter of debate and policy decision, as it involves balancing the need for government revenue with considerations of economic incentives, investment, and potential unintended consequences.

Why are countries charging Windfall Taxes?

Crude oil, gas, and coal prices have dramatically increased since 2020. As a result, energy firms made large profits at the expense of customers, who now pay significantly more for their energy use.

In light of this, the UN Secretary-General urged countries to apply windfall taxes on businesses that have greatly benefited from the increase in the price of fossil fuels. As a result, numerous nations, besides India, are thinking about enacting windfall taxes, including the UK, Germany, and others.

International stance on Windfall Tax

Italy is the most recent nation in Europe to surprise banks with a windfall tax on their earnings, which have increased as a result of interest rate hikes, in an effort to assist homeowners.

In order to earn $3.4 billion in 2023 from profits judged excessive to support assistance for families and businesses hurt by skyrocketing electricity and gas prices, the Czech lower house of Parliament authorized a 60% windfall tax on energy firms and banks.

President Emmanuel Macron of France stated in March 2023 that businesses with over 5,000 employees should instead reinvest more of their “exceptionally high” revenues into their workforce. However, he and Finance Minister Bruno Le Maire have disregarded the idea of a windfall tax. While French banks restrict the rate of quarterly increases in loan pricing, the country has a well-known, regulated savings program with an inflation-linked return that adjusts more swiftly than loan rates. This program accounts for slightly under 20% of bank deposits in France.

Compared to the COVID-era lows, net interest revenue for some of Germany’s largest banks has increased by 50% to 70%. However, under pro-business Finance Minister Christian Lindner, a windfall tax has not been a topic of discussion.

The German finance ministry declined to comment on Italy’s decision but pointed out that a coalition government agreement in Germany forbids tax rises.

In a decree issued in June 2023, Hungary modified the windfall taxes levied on significant economic sectors, stating that banks might pay up to 50% less in windfall taxes in 2024 if they increased their purchases of government bonds. Additionally, it placed a brand-new 13% “social tax” on specific investment kinds.

Italy authorized a one-time 40% tax on bank profits from increased interest rates on August 8. It intends to utilize the money raised to assist homeowners. According to insiders, it anticipates receiving less than 3 billion euros ($3.3 billion) in tax revenue.

In May 2023, Lithuania authorized a windfall tax on the banking sector’s net interest revenue.

In order to improve public finances and provide room to absorb the costs that a financial crisis could generate, Sweden implemented a “risk tax” for institutions having liabilities related to Swedish operations of over 150 billion Swedish crowns ($14.1 billion) in 2022 January.

In 2022, the tax amounted to 0.05% of liabilities and rose to 0.06% in 2023. The estimated annual revenue is 6 billion Swedish crowns.

Britain did not enact a bank windfall tax, but since 2011, it has imposed a bank levy that applies to both the global balance sheet assets of UK banks and the assets of foreign banks that have operations in the country.

Are Windfall Taxes fair?

There is a school of thought that believes that corporations don’t operate in a vacuum and that they have a moral obligation to the citizens of the countries they are from. The citizens are the end consumers who help these colossal organizations amass incredible profits.

However, this political intervention in the industry is risky because it occurs while economies are on the verge of recession. Governments must use extreme caution since doing so will undoubtedly frighten bank investors, increasing the capital cost. Additionally, weakening banks is not a wise move because those same banks may be required to provide free-flowing credit during a crisis.

There are many arguments against windfall tax, the most obvious of which is arguably the fact that the majority of banks have no windfall to tax. Analysis reveals a somewhat different scenario from the headlines about European banks reporting “decade-high” profits that have dominated the current reporting season. For many of these banks, the return on the equity deployed remains unimpressive, averaging 10 to 13%. That merely covers the return required by investors, which is also their cost of equity.

Additionally, a recession might be on the horizon, and when one hits, bank earnings plummet as loans default and losses skyrocket. On whether banks would be better prepared to weather a crisis this time, there is debate—there always is. However, the scenario in which impairments increase and profitability declines is by far the most likely. Profitability may decline from its low beginning levels. Because of this, despite appearing to have received “windfalls,” the share values of European banks have decreased by approximately 10% since March 2023.

The fact that politicians and regulators effectively opposed such a move in the recent past, albeit from a different angle, may be the strongest case against a windfall tax. At the beginning of the COVID crisis, politicians persuaded European regulators to compel banks to halt dividend payments. Their justification was straightforward and seemed convincing. Banks would be better prepared to handle the impending recession if they kept more of their profits, allowing them to lend more to the real economy and have more cash to recognize loan losses.

Do Windfall Taxes work?

There are several historical examples of such a windfall tax levied on a specific industry after it registered record gains.

The Oil and Gas Industry in the United Kingdom was taxed for the windfalls it made in the early 2000s. The country introduced windfall taxes on energy companies during a period of high oil prices. The taxes were meant to capture a portion of the unexpected profits generated by these companies due to the surge in oil prices. While these taxes generated revenue for the government, the move also faced criticism from the affected companies and some economists, who argued that such taxes could discourage investment in the energy sector and lead to reduced exploration and production.

The Mining Industry in Australia had a windfall tax during the commodities boom in the mid-2000s. The tax, known as the “Resource Super Profits Tax,” was intended to capture a portion of the extraordinary profits made by mining companies due to the high demand for commodities like iron ore and coal. The tax proposal faced strong opposition from the mining industry, which argued that it would hinder investment and job creation. The tax was eventually repealed.

Germany implemented a windfall tax on telecommunications companies during the late 1990s and early 2000s as part of its efforts to reduce its budget deficit. The tax was imposed on the proceeds from the auction of 3G mobile spectrum licenses. While the windfall tax helped generate additional revenue for the government, it also sparked criticism from the affected companies and analysts who raised concerns about the potential impact on investment in the telecommunications sector.

The Banking Industry in Iceland was taxed in the aftermath of the 2008 financial crisis. The move was projected as a bid to stabilize the European country’s economy and address its fiscal challenges. The tax was applied to the large profits that Icelandic banks had made leading up to the crisis. This measure was part of a broader set of policies aimed at managing the crisis, and its effects were intertwined with other economic factors at play.

Some commodity-exporting countries, such as those heavily reliant on oil revenues, have considered or implemented windfall taxes to capture a larger share of profits when global prices are high. These taxes can provide governments with additional revenue that can be used for public spending or diversifying the economy. However, elements like the degree of government transparency, the administration of tax revenue, and the state of the economy as a whole can affect how effective such taxes are.

It’s important to note that the effects of windfall taxes can vary widely based on specific circumstances. They have the potential to affect investment choices, economic activity, and government revenue, and a variety of factors, such as the state of the economy, the structure of the industry, and public opinion, can affect their success or failure.

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Annual Salary Of Highest Earners
The EPI data says that the yearly wages of the top 1% rose to USD 823,763 in 2020, 7.3% more than what they earned in 2019.

So what salary must you have to be in the top 0.1%?
A substantial USD 3,212,486 is over 10% more than that group made the year prior. Over the same period, wages for the lowest 90% increased just by 1.7%, with an average income of UD 40,085.

The top 1% of earners have seen their incomes increase by 179% since 1979, and the top 0.1% have seen their wages increase by 389%, according to EPI research. Pay for the lowest 90% category only increased by 28%. EPI got the figures from the recent Social Security Administration data.

Effects Of Financial Crisis
The wealthiest 0.1% and 1% of earners respectively saw their salaries decline the most during the 2007-2009 financial crisis. The richest 0.1% still needed to reach their 2007 earnings in 2020. Since 2007, salaries for the top 5% of earners have increased by 13.4%. The top 10% experienced a 16.5% growth.

The COVID-19 Effect
Despite the pandemic hammering the United States economy, the rich have continued to get richer. From March to December 2021, this 1% wealthiest Americans got richer by USD 4.5 trillion.

Another Federal Reserve says that till 2021, the country’s wealth was more controlled by the top 1% of individuals than the 60% of American middle households, who possessed a share of 26.8%.

Income Inequality
As noted by the EPI, “The bottom 90% made up 69.8% of all incomes in 1979 but only 60.2% in 2020. But from 7.3% in 1979 to 13.8% in 2020, the top 1% share of earnings doubled.”

The EPI also said that from 1.6% in 1979 to 5.4% in 2020, the share of earnings of this top 0.1% more than tripled.

Is The Wealthy Getting Wealthier?
The wages of the top 1% increased by 119.2% between 1979 and 2020, whereas the rate of rise for the top 0.1% was more than twice as high: 389.1%. The bottom 90% saw a growth of 28.2% around the same period. The upward wage distribution from the bottom 90% to the top 1.0% from 1979 to 2019 reached a significant level in 2020, producing historically high wage levels and shares of all wages for the top 1.0% and 0.1%.

How Much Salary Would I Need To Earn To Be In The Top 0.1%?
Roughly USD 3.21 million in a year. As of 2020, this is an all-time high, and 2021 is expected to break yet another record.

How Many People Are Billionaires?
The global count has declined by 87, according to Forbes’ annual list of the world’s wealthiest people published in 2022. And thousands of them have more money now than they did in 2021.

735 Americans are billionaires, more than any other nation. China is just a little behind at 607, which includes Hong Kong and Macao. Only eight African Americans are among the country’s billionaires. These include businesspeople Robert F Smith and David Steward, Oprah Winfrey, Kanye West, Rihanna, Michael Jordan, Jay-Z, and Tyler Perry.

The Conclusion
Since 1979, the wealthiest Americans saw their wealth increasing more quickly than the rest of the population. Despite a series of changes in the salary ranges in the last 42 years, the income gap between the richest and lowest incomes still remains at large.

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IFM Correspondent

April 20, 2016: Yahoo on Tuesday announced its first quarter earnings which were better than what Wall Street had estimated. The company posted adjusted first quarter earnings per share of 8 cents, compared to 15 cents per share in previous year.  Gross revenue for the quarter also fell year-over-year, coming in at $1.09 billion, compared to $1.23 billion during the same period last year.

The company’s shares rose by almost 1 per cent to $36.66 in light volumes in extended trading on Tuesday. Addressing the media, Yahoo CEO Marissa Mayer did not give much detail on bidding. She said the company has made “substantial progress towards potential strategic alternatives for Yahoo”.

“Our board, our management team, and I are completely aligned on this top priority for shareholders,” she said. According to The Wall Street Journal, most of the bids came in the range of between $4 billion and $8 billion.

Yahoo said that its board has “formed a strategic review committee of independent directors to consider strategic alternatives for the company alongside its continued consideration of a reverse spin.”

“Since the launch of the process in February, management has worked diligently with the committee and its independent legal and financial advisors to engage with interested strategic and financial parties,” Yahoo said in its Tuesday release.

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IFM Correspondent

April 19, 2016: Yahoo is all set to announce its first quarter earnings on Tuesday April 19. But perhaps, this is the first time in its history that not many will be keen on its top line or bottom line figures.

What will be of interest to many will be some sort of news on the bidders’ front. For starters, Yahoo had set April 11 as the deadline for preliminary bids. Suitors were expected to explain which parts of Yahoo’s business they wanted.

The struggling web portal’s biggest assets are its investments, including its stake in social networking website Tumblr and Chinese ecommerce giant Alibaba.

Various reports by experts suggest Verizon to be the frontrunner for Yahoo. According to a report by CNBC, analysts are betting on Verizon especially after its $4.4 billion acquisition of AOL in June 2015.

Earlier in February while reporting its fourth quarter earnings, investors were hoping that Yahoo will provide some clarity on its future course of action. However, all that its CEO Marissa Mayer had said was “we are open to all options”. As a result, Yahoo’s stock had fallen to a 52-week low.

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