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Government may intervene if businesses don't “step up” on executive pay

Boards and remuneration committee chairs need to ensure that chief executives (CEOs) are rewarded for delivering genuine long-term value to companies, says Rachel Reeves MP.

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This comment comes after the CIPD and the High Pay Centre, an independent think tank for pay and governance, released new research finding FTSE 100 CEO median pay has increased by 11 percent between 2016 and 2017.

 

The research is an annual assessment of FTSE 100 CEO pay packages. This year’s research found that the increase in CEO earnings is compared to a two percent rise in median pay for full-time workers.

 

It also found that FTSE 100 CEO median pay now stands at £3.93m per year, an increase on £3.53m in 2016.

 

The CIPD and High Pay Centre said CEO reward increases outstrip pay rises for the wider workforce, fuelling questions over fairness and governance in Britain’s biggest businesses.

 

Peter Cheese, chief executive of the CIPD, said: “Despite increased investor activism and the planned introduction of pay ratio reporting, the evidence suggests that very little is changing when it comes to top pay in the UK. It’s disappointing to see that CEO pay has held up in the face of increasing pressure when average pay across the workforce has barely shifted in recent years. However, pressure is building in the system.

 

“Given the ongoing issues of trust in big businesses and a push for greater transparency, it really is time businesses and boards put greater scrutiny on high pay, and that they think much more objectively about what they are rewarding CEOs and how.”

 

Reeves, who is chair of the Business, Energy and Industrial Strategy Committee - which is managing an enquiry on ‘Corporate Governance – Delivering on fair pay’, said: “Executive pay must match performance. Boards and remuneration committee chairs need to ensure that CEOs are rewarded for delivering genuine long-term value for the company.

 

“If boards and remuneration committee chairs are so out of touch they are prepared to waive through off-the-scale reward packages, then shareholders must strike back and hold them to account. If businesses don’t step up on executive pay, then government will need to step in”.

 

To advocate fairer and more ethical approaches to pay and reward, the CIPD and the High Pay Centre have several recommendations including:

 

• Rather than waiting for the pay ratio reporting requirement to come into force in 2019, companies should introduce it immediately, supported by a clear narrative;

• Companies should provide clearer information about wider pay distribution within their organisations;

• Policy-makers and companies should review whether existing remuneration reports can be reduced in length and complexity to ensure they can be easily scrutinised;

• Remuneration committees should ensure that CEO performance is assessed by non-financial as well as financial measures, including investment in workforce training and development and indicators of employee satisfaction and well-being.

 

This autumn the CIPD and the High Pay Centre said it will publish a new report which examines how the remuneration committee can be reformed to deliver better outcomes on pay from the perspective of all stakeholders.

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