CEO pay in the United Kingdom, 1968-2022

This paper contributes to the literature on British business elites by examining the development of pay structures and levels for CEOs of large listed companies in the United Kingdom for the period 1968–2022. It describes two competing theories about executive pay, ‘optimal contracting theory’ and the ‘market failure approach’, and considers to what extent they help to explain the historical data. The paper notes how the imitation of American pay structures, especially stock options, in the 1980s, along with the ending of high marginal tax rates which had been prevalent in the UK in the 1960s and 1970s, coincided with steep rises in executive pay. It concludes that isomorphic social comparisons, a prisoner’s dilemma at the heart of the work of remuneration committees, a collective action problem faced by institutional investors, and a discount that executives apply to the perceived value of stock options has resulted in top pay inflation.