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Will the obligation to publish the pay ratio between CEOs and their average UK workers reduce pay inequality?

29 September 2017

Will the obligation to publish the pay ratio between CEOs and their average UK workers reduce pay inequality? - Read more

Our community discusses whether new transparency duties will narrow pay disparities.

The government proposal to force large public companies to publish the pay ratio between their CEO and average UK workers has caused a stir in the Governance and Compliance/Core community.

Asked whether the proposals will reduce pay inequality, those surveyed mostly think it will not (55%), compared to 13% who think it will, and a third unsure.

‘A comparison between CEO and average worker pay is meaningless without a good understanding of the demography of the company,’ one person said.

‘A large multi-national retailer with a high number of unskilled workers is likely to have a higher ratio than a relatively small professional services company with a large number of highly-skilled professional employees.’

Another respondent was more equivocal, saying: ‘It may over time have a positive impact on reducing pay inequality, particularly for companies that are listed and concerned about their reputation.

‘However, I am concerned that those companies in which pay inequality is rife will probably not care about impact on their reputation.’

Many worry pay ratios will be misconstrued, even though companies will have to provide a narrative context alongside the figure. 61% of those surveyed believed the ratios would be used to unfairly criticise companies, with 22% disagreeing, and 17% unsure.

‘The media are running a very left-wing and anti-business agenda,’ one person said.

Another suggested it could incentivise outsourcing. ‘My concern is that it will further drive outsourcing of low paid or low skilled roles from companies […] reducing perceived inequality but allowing companies to “divorce” themselves from responsibilities,’ they said.

“The media are running a very left-wing and anti-business agenda”

Suggestions varied on what information should be published around corporate pay. ‘Annual and monthly salary; share options; percentage performance rewards; percentage difference between chief executive pay and lowest and highest paid employees’, were one person’s ideas.

One respondent called for ‘more detailed information on reasons or objectives for awards or increases without reverting to stock phrases such as attracting and retaining the best staff’.

‘So often pay increases and bonuses are awarded when objectives are not met due to reasons deemed to be beyond their control, questioning the validity of the original objective,’ they said.

A consistent request is for more detail on the gender pay gap. ‘It is important that companies publish the ratio between the pay of men and women who do the same role,’ one said. ‘Companies should be held accountable if there is gender inequality in their pay structures.’

Another asked for ‘details of pay bandings and/or technical skills levels associated with those bandings, number of people within each band (split male/female), and a ratio which clearly shows the difference between each banding and the CEO’.

Representing a minority view, one person said: ‘They already publish enough on pay; the size of the remuneration report is already long and detailed and probably out of proportion to other key reporting areas.’ Another added: ‘I’m not in favour of any data being made publicly available.’

There was some dispute as to whether CEOs are paid excessively in the UK. ‘Whether pay is excessive depends on how you define excessive and I am not sure that anyone is prepared to grapple with that,’ one person said.

Some defended the levels of pay, with one respondent saying: ‘Britain needs to compete in the world market and these are the levels required.’ What was generally agreed was that the debate will continue to simmer.

Conducted in association with The Core Partnership

If you are a company secretary or governance professional at a leading UK business, and you would like to take part in or comment on future surveys, email team@core-partnership.co.uk

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