Government plans expected to include requirement that top companies explain ratio between earnings of bosses and staff
Britain’s top companies could be forced to disclose and explain the pay gap between their chief executive and workers under plans to be set out by Theresa May as she tries to show her domestic reform agenda remains on track.
Despite the Conservatives’ disastrous general election performance, the government is keen to demonstrate that it will get to grips with rising corporate pay in plans expected to be announced next week.
Government sources stressed that the pay transparency plans were only one aspect of a package of measures aimed at reining in boardroom excess and making Britain’s companies work better.
The green paper on the subject, published last year, raised the question of whether companies should publish ratios comparing CEO pay with earnings in the wider company workforce. Implementing it would represent a response to Labour. Jeremy Corbyn put tackling inequality at the heart of his general election campaign and aired a proposal for a pay cap that would limit the highest paid member of staff to 20 times the average worker for companies with public sector contracts.
However, May is treading a difficult path between public concern about fat cat pay packets and her party’s business backers. She has already backed away from more radical proposals, including legislating for workers’ representatives on boards – and campaigners against corporate excess are likely to warn that the plans lack teeth.
May originally raised the prospect of a crackdown on executive pay in her Tory leadership bid in July 2016 in a speech that included proposals to allow employee and consumer representatives to sit on company boards, and make shareholder votes on executive pay legally binding.
However, when a green paper was published in November the prime minister faced criticism from unions for backtracking on installing workers’ representatives on boards, while opposition MPs questioned whether enough safeguards were being put in place to avoid a rerun of the debacle at the collapsed department store chain BHS
The green paper launched a three-month consultation asking for submissions on issues including whether shareholders should be given a binding vote on executive pay, how employees could be heard in the boardroom and whether private companies should be subjected to some of the rules faced by companies listed on the stock market.
The document provided a number of options on each area – including the binding vote, which it suggested could be only on part of a director’s pay packet or when there had been significant protests about pay in the past.
The green paper asked whether companies should publish their pay ratio – the gap between the chief executive and the wider workforce – but also cautioned that the information could be misconstrued. In 2015 chief executives received 128 times the average pay of their staff, the document said.
It also included proposals, first raised by the fund manager Hermes, which could require companies to set out the maximum amount a chief executive could earn. The paper asked if the current system of paying bosses though long-term incentive plans – share awards that pay out in three years – should be thrown out. It also questioned if pay deals should be based over three rather than five years.
A pledge to rein in executive pay was also included in the Tory manifesto published in May before the general election, although it included little detail.
Ordinary employees would have to work for 160 years to earn the average remuneration of FTSE 100 chief executives in 2016, according to the High Pay Centre’s annual survey of top executive pay, published earlier this month.
The average take-home pay for the bosses of Britain’s top stock market-listed companies was £4.5m last year, according to the High Pay Centre’s annual survey of top executive pay. This compares to Office for National Statistics figures showing average annual earnings of £28,200 for full-time employees in the year to April 2016. The report also shows that male FTSE 100 bosses earned 77% more on average than their female counterparts last year.
This year’s report highlighted one positive trend – the average pay of a chief executive has fallen by 17% from £5.4m to £4.5m over the year. But it would take the average worker 1,718 years to accrue the £48.1m annual remuneration of Sir Martin Sorrell, chief executive of marketing and advertising business WPP, who is Britain’s highest paid FTSE 100 boss.