Britain’s leading CEOs earn more than 100 times the median pay of their workers, up from 20 times in the 1970s. Michael Aldous and John D Turner write that this extraordinary rise wouldn’t be so bad if high CEO pay led to better performance. But it doesn’t. Nor does it help improve the UK’s productivity problem.

In 2025, it is estimated that the pay of Britain’s leading CEOs will be 113 times the median pay of their workers—up from 20 times in the 1970s. Since the 1980s, this ratio has been steadily increasing. Thomas Piketty argued that the extraordinary rise in the pay of what he terms “supermanagers” has been a major reason for the increasing wealth of the 0.1 per cent and a factor driving income inequality.

Top CEOs form part of a new plutocracy. But this wasn’t always the case. Why did their pay increase so rapidly in the UK from the 1980s onwards? And perhaps more importantly, what do they do to justify such rewards? Our history of British CEOs helps us understand how we arrived at this juncture.

The first high-paid CEOs

In 1986, Sir Ralph Halpern, CEO of Burton, the clothing retailer, became the first CEO in the UK to be paid £1 million a year. When he was forced out in 1990, he walked away with a £2 million severance payment better known as “a golden parachute” and a pension package 271 times bigger than the state pension. Halpern was at the forefront of a trend.

Cedric Brown, of British Gas, was paid £50,000 in 1986, the year before the company was privatised. After that, his salary increased by about 700 per cent in eight years. He would become synonymous with fat cat CEOs. The same was true for the leaders of other privatised companies.

In 2003, the Independent newspaper published its FATSE Index, which listed the pay of CEOs of the 100 largest UK public companies. Eighty-five of them were paid more than £1 million. Meanwhile, the starting salaries for nurses and teachers in the UK in that year were £9,735 and £16,599.

Rise of the professional manager

Early in the twentieth century, many corporate leaders came from elite backgrounds, or from family-owned businesses, as founders or members. Pay was not necessarily a major focus for them. While these roles provided nice sinecures and sources of family wealth, the real benefits often came from either ownership of the company or the enhancement of social and political capital.

As companies grew in size, ownership became more diffuse and professional managers became increasingly common. After World War II, most of Britain’s large companies were run by experienced professional executives, for whom pay was the primary source of remuneration.

By the 1980s, CEOs had become all powerful in the companies they managed. They were pushed to focus on delivering shareholder value and were made accountable for performance. But the quid pro quo was giving CEOs greater control over decision-making. With responsibility came power.

Why CEO pay increased fast

These changes provide various arguments as to why their pay increased so dramatically.

First, they were now running bigger, more complex organisations in more competitive conditions, and thus deserved more pay. It may be true that the nature of the role had changed, becoming more demanding in terms of authority and decision-making. But it’s notable that across the century British CEOs had been running very large companies in extremely testing situations—including two world wars, a Great Depression and periods of political, social and technological upheaval. Conditions in the 1980s and 1990s were not unique.

Second, changes in the role required more unique skills that were in short supply. Were the skills or cognitive abilities of CEOs in the 1980s and 1990s deserving of their high rewards? Chief executives appointed since the 1980s were more likely than their predecessors to have a university degree, a postgraduate qualification and specialist management education. But higher education had significantly expanded in the 1960s and 1970s, which is when most CEOs in the 1980s and 1990s went to university. It is unlikely that this made them distinctive or uniquely skilled and warranted the large pay increases they received.

Third, globalisation created a global market for CEOs. To get good candidates, UK companies had to increase their salaries to levels found in the US. But by 1999, 86 per cent of FTSE-100 companies had a British-born CEO and only five per cent had an American CEO. Americanisation may have been important in explaining changes in management practices but the number of Americans practicing them in the UK was insignificant at the top level. Competition was perhaps not as intense as members of remuneration committees made out.

Tenure and trade unions

Significant changes did, however, occur in these decades to the structure of CEO careers. Tenures became much shorter, and CEOs were much more likely to be fired for poor performance. Studying a sample of 655 chief executives active in 1999, we found that 43 per cent had either been sacked or forced out because of a takeover. Their tenures were shorter and the probability of being dismissed was much greater. As a result, they either quickly extracted as much as they could from the firms while they were still leaders; or demanded high compensation from shareholders for accepting a shorter tenure and a greater likelihood of being fired.

There’s another important reason why executive pay went up fast. In 1980, trade union membership peaked at 54 per cent of the workforce but decreased steadily to 29 per cent by 2000, with the decline occurring mostly in the private sector. Unions had previously used executive pay as bargaining chips in pay negotiations, using increases to demand parity for workers. As the power of unions declined, executives and shareholders no longer had to worry about their response to massive pay hikes.

Finally, social norms regarding high pay had also changed. The shared purpose and communal efforts to rebuild the country in the post-war years that had constrained egregious efforts at individual aggrandisement was replaced by a free-market ideology and societal embrace of superstars.

Corporate performance

Maybe we shouldn’t get hung up about high CEO pay if it results in better performance. However, the extent to which it has improved performance is debatable. Pay increases were often examples of greed and governance failure—typically unconnected to firm performance.

More problematically for the British economy, these increases have failed to spur or reflect significant or sustained improvements in productivity. This highlights the need to rethink the link between pay and performance, and the mechanisms that govern this relationship. 

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• This blog post is based on The CEO: The Rise and Fall of Britain’s Captains of Industry, Cambridge University Press (June 2025).
• The post represents the views of its author(s), not the position of LSE Business Review or the London School of Economics and Political Science.
• Featured image provided by Shutterstock
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