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UK firms warned over 'corrosive' top pay

Nov 22 2011 11:02

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London - Executive pay needs to be radically simplified and companies should include workers on remuneration committees to end runaway awards that are “corrosive” to Britain’s economy, the independent High Pay Commission (HPC) said on Tuesday.

Its full list of 12 proposals on overhauling executive pay are likely to inform government action and debate among companies, amid growing public anger about pay increases for bosses that have far outstripped average wages.

The HPC’s year-long inquiry found pay for some top executive roles has risen more than forty-fold in the past 30 years, while average wages are just three times higher.

The HPC, set up by left-of-centre pressure group Compass with backing from the Joseph Rowntree Charitable Trust, includes a range of voices, from fund managers and pension funds to trade unions.

Its report comes at a time when ministers are contemplating new rules on top pay and many in Britain are worried about rising unemployment and falling living standards.

Prime Minister David Cameron said in October he was concerned by news that pay for directors of Britain’s top 100 companies rose 49% last year, while business secretary Vince Cable is considering legislation on pay in 2012.

“Many of the options we are consulting on are reflected in the High Pay Commission final report,” said Cable. The report could dovetail with his own review on top pay for which final submissions were due on Friday. The government plans to announce its next steps early in the 2012.

Cable said he was seeking views on whether there should be a binding vote for shareholders on deciding pay, employee representation on remuneration committees, and how to simplify and improve a company’s pay structure.

Those were all measures recommended by the HPC, which also wants companies to reveal their top 10 pay packages outside the boardroom and disclose the pay ratio between the highest-paid executive and the company median.

Victorian era

Latest data showed that the chief executive of oil company BP earned 63 times the amount of the average employee, up from a multiple of 16.5 in 1979, while top pay at lender Barclays was 75 times that of the average worker, up from 14.5 in 1979, the HPC said.

That compared with the United States, where average CEO remuneration is 142 times that of employees, according to Thomson Reuters ASSET4 data.

The HPC estimated that by 2035 the top 0.1% will take home 14% of Britain’s national income, a level of disparity not seen since Victorian times.

“We have seen rampant, runaway excesses on pay and bonuses and I think people want that brought back under control,” HPC chief executive Deborah Hargreaves said.

“There’s a crisis at the top of British business and it is deeply corrosive to our economy.”

Alan MacDougall, managing director of shareholder advisory firm PIRC, said the report would reset the remuneration debate at a time of rising investor concerns on the issue.

This year has seen pay revolts at 14 companies in the FTSE 100 index - defined as cases where at least 20% of shareholders opposed or abstained on remuneration reports - up from 7 in 2010. The 2011 revolts occurred at some of the biggest companies including BP, HSBC, Rio Tinto and WPP.

But Heather McGregor, director of executive search firm Taylor Bennett, said the idea of having employee representatives on remuneration committees was “barking mad”.

“These companies are owned by their shareholders and it is the shareholders who should have a say on executive pay, not the workers,” she told BBC radio.
uk economy  |  financial crisis  |  global economy


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