Earlier this week it was revealed that Denise Coates, the chief executive of online gambling company Bet365, was paid a salary of over £97m in the year ending March 2024, as part of a total compensation package worth almost £158m.

Although a big drop from the previous year, talk of such figures – several thousand times higher than the average UK salary – inevitably spur conversations around unfairness and the rising discrepancy between the pay of chief executives and other employees.

In reality, UK companies are relatively restrained on executive pay in comparison to other countries, with UK-listed businesses operating under much stricter remuneration standards than many overseas competitors. But criticism is nevertheless commonplace, with annual report season rife with words like “obscene” and “fat cats”.

Why it matters to employees

Companies usually consider and prepare for potential criticism of executive pay packages from external stakeholders including shareholders and the media. Of course they are important. But executive pay can have a significant impact on employees too. CEO compensation deemed as particularly high, especially if accompanied by limited salary growth for the broader workforce, can trigger numerous negative impacts if not well handled.

Mistrust of the CEO and the wider leadership team. Resentment. Disengagement and reduced productivity. Failing to adequately explain and justify executive pay can create huge differences in how employees perceive the leadership and the company as a whole.

Internal communicators should tread carefully around this sensitive topic, but that does not mean burying their head in the sand. HR teams can often instinctively take a risk-averse “legal” approach to executive pay where they explain the bare minimum, but this often creates more questions and problems than it solves.

Explain the rationale

Companies must be prepared to explain, in simple, jargon-free terms, the methodology used to calculate the CEO’s pay; the governance behind the process; the key principles behind its compensation strategy; how it compares to peers and what it unique or different about it. Transparency over how compensation is calculated is key to building and maintaining trust.

Be aware of the context

Executive pay will always be perceived by employees in the context of their own performance and how they are feeling financially.

If customers and employees are facing big increases in food prices or energy bills, for example, then a big salary hike for a supermarket or energy company CEO won’t go down well. Similarly, if a company is going through a tough time and has imposed cost-saving measures impacting the workforce, the overall perception is going to be that there is one rule for the bosses in their ivory tower, and another for everyone else.

Prepare for criticism

Have a plan in place for the inevitable criticism that accompanies executive pay announcements. This is particularly true if you have a sense that your data will be an outlier when compared to other companies. This preparation should pre-empt potential misunderstandings or misinterpretations, ensuring that employees understand the full story before they hear any external criticism.

Use pay to signpost your values

Many companies now factor ESG targets into their executive compensation packages (though not to a large enough extent, in my view). Executive remuneration should be closely linked to how the company performs in its long-term commitments to all stakeholders, including its people, its communities and the planet, as well as its financial stakeholders.

Many employees care about this and they want to see their CEO rewarded for driving positive change, not just investor rewards. Any pay package that is linked to these wider commitments should be clearly communicated to employees to demonstrate what the company values.

Help managers communicate

Often employees will shy away from asking questions to central teams, but will have more confidence in doing so with their line managers. It can be useful to provide managers with a toolkit to help them respond to questions and reinforce the key points, so consistent information is communicated to interested staff.

Foster two-way communication

Encourage employees to share their questions and concerns. Create forums - whether through town halls, Q&A sessions, or anonymous feedback channels – that give them the opportunity to address their views openly, perhaps on a range of topics rather than the CEO’s pay package specifically. Providing these opportunities demonstrates that the organisation’s leadership values their input.

Communicating to your teams about CEO pay is about more than just the numbers. Done badly, it is fraught with risk, but handled well, it’s an opportunity to reinforce trust, demonstrate fairness and alignment between leadership and employees. Companies who consider it properly can turn a lightning rod for disgruntled employees into a moment of connection and shared purpose.