Pay ratios could be made public as part of executive salary reform

London Canary Wharf

A City report will recommend exposing the gap between a company’s boardroom pay and that of the wider workforce as part of a package of measures to reform executive salaries.

Publishing pay ratios – the chief executive’s pay relative to the average employee – is one of the ideas being suggested by a group of City executives to overhaul the system of boardroom pay.

In April, when the group published its interim report, it warned that the current system was not fit for purpose and resulted in a poor alignment of interests between executives, shareholders and the company.

Since then, the appointment of Theresa May as prime minister after the vote to leave the European Union has put the issue of executive pay back on the political agenda. During her leadership bid, May spoke of new votes for shareholders on executive pay and putting workers on boards.

The group, chaired by Nigel Wilson, chief executive of Legal & General, has also been exploring ways to move away from a one-size-fits-all model for executive pay. Currently stock-market-listed companies use long-term incentive plans – also known as Ltips or share awards based on three- or five-year performance – as bonus schemes. The working party has been discussing whether schemes should be tailored for individual companies.

Wilson has previously said the the pay gap between board members and workers had “resulted in widespread scepticism and loss of public confidence”.

The move to publish ratios will be welcomed by pay reformers. Stefan Stern, director of the High Pay Centre, said he was setting up a “40 times” club, referring to a specific ratio of executive pay to the wider workforce. Only a handful of FTSE 100 companies fall into this category, which is a much narrower pay gap than in other major listed businesses.

Publishing pay ratios was a good discipline Stern said. “It’s another way of trying to encourage those at the top to [show] greater restraint.”

Data published by the High Pay Centre and the Manifest shareholder advisory body last year showed that the ratio of chief executive pay in the FTSE 100 to their average employee was 150:1 in 2014. The average pay for a FTSE 100 chief executive was £5.2m compared with £34,846 for the workforce.

Boris Johnson warned about growing inequality when he was mayor of London. In October 2015, he made remarks that appeared to be aimed at Sir Martin Sorrell, chief executive of advertising company WPP, who at the time had been paid £43m. Speaking to the Conservative party, the new foreign secretary said: “There are some gigantic self-appointed sequoias that pay themselves 780 times the salary of the little shrublets they employ.”

Powered by Guardian.co.ukThis article was written by Jill Treanor, for theguardian.com on Monday 25th July 2016 16.23 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010

 

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