'Shame' boards into cutting executive pay, says think tank

The High Pay Centre wants companies to publish CEO-worker pay ratios.

by Jack Torrance
Last Updated: 29 Apr 2016

The pay of Britain’s top bosses is undoubtedly high. FTSE 100 CEOs netted an average annual pay package of £4.96m in 2014, 183 times the median earnings of an average worker. Whether that’s justifiable is a point of contention that can be argued until the cows (or fat cats) come home, but it’s surely hard to disagree that more transparency would be a good thing?

Earlier this year the American Securities and Exchange Commission introduced new rules forcing companies in that country to publish the ratio between their top-earning and average employee and today there are fresh calls to do the same here.

‘Pay ratios – revealing the gap between what is paid at the top and the middle of a business – could help bring back at least a modicum of shame or embarrassment into our boardrooms,’ said Stefan Stern, director of the High Pay Centre. ‘This would be a healthy development.’ Maybe so, but that’s not going to be a straightforward thing to achieve.

The think tank published a report today setting out why and how such a system could be implemented in the UK. There are certainly plenty of ‘hows’ to be ironed out – it’s taken the American authorities five years to define how their system will actually work.

Should casual workers and contractors be included in the measures of employee pay? Outsourcing is on the rise and the distinction between employee and freelancer is being blurred. How do you actually define CEO pay? The High Pay Centre makes a case for including the ever-expanding variety of perks executives enjoy (from London club membership to chauffeurs and school fees), which it likens to ‘a list of outrageous rock star back stage "riders".’ These kinds of questions are challenging but could be hammered out if there was political will.

The ‘whys’ are more contentious. Though the report argues the ratios themselves could be calculated at zero cost (because the data should exist in a company’s books already), publishing the figures could create plenty of work (and therefore fees) for corporate comms bods drafted in to justify the disparity. The ratios would also reflect more badly on some sectors than others. Retailers have more low-wage staff than financial services companies, but surely that shouldn’t mean their bosses are paid less?

Stern says the impact  of reducing inequality on employee morale and motivation 'could be powerful,’ but spelling out just how underpaid people are could also lead to resentment and disengagement. Then again, that could be just the spur boards need to rein in CEOs’ excessive pay packets.

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