We recently published a new thought leadership report on the controversial matter of excessive pay.
As long as executive pay packets are perceived as excessive and unfair, they will undermine the pivotal role that business plays in building strong economies around the world. Excessive pay routinely sparks anger and resentment, subsequently overshadowing other challenges and detracting from success.
Companies are often frustrated by the level of attention that executive pay attracts, but they are also in the best position to shift public opinion – either by justifying such pay in a way that people can understand, or by making changes.
In a world where trust is being challenged, and where fairness and transparency are more important than ever before, it’s crucial that we help boards tackle executive remuneration in an effective, sustainable and realistic way.
We need to ask key questions around whether business leaders add sufficient value to justify their pay, and consider more widely the fair distribution of wealth in the workforce.
Getting this right will require leadership at board level, an understanding of public sentiment and a willingness to listen and, where appropriate, to change. Ultimately, it’s directors who need to justify decisions on executive pay.
It’s a huge challenge which will require the courage to properly reflect, keep an open mind and take affirmative action where necessary, including developing and trialing new ways of working.
Connect and Reflect
We chose this as the first topic in our “Connect and Reflect” series of papers, because we know how important and difficult it is.
This document presents a ten-step action plan for boards to follow, providing a solid foundation for the calm and balanced reflection that is needed.
Such reflection requires all viewpoints and stakeholders to get a fair hearing, including those that may support current levels of executive pay.
This publication is well-timed. It formed the basis of our written and oral evidence to the BEIS Select Committee’s inquiry into fair pay. It also forms part of our contribution to the debates on the Government’s action plan for corporate reform.
The most high-profile of the remuneration reforms is the introduction of pay ratios, which will compare the pay of CEOs with that of the 25th, 50th and 75th employees in their companies. This will give an insight into the distribution of pay throughout companies, and the future requirement to report the ratios for the nine preceding years will help draw attention to any significant changes.
I hope that these reforms, together with our thought leadership and a more reflective approach from boards, will generate a more informed and mature conversation around excessive pay.
A very important subject. It is interesting to note that ambitious high performers still aimed for the top jobs in past generations despite the multiple of pay they would get over more junior colleagues being tiny compared to in today's corporate world. So the lazy argument "oh you have to pay big money to get the best" does not hold necessarily at a macro level.
I object to the description "excessive pay" I am a member working in the public sector, I am in the grade system which has a tendency to inflate non-professional staff pay if anything. I would earn more in the private sector but I like and value my job, my first in the public sector, and there are other factors such as work life balance.
The ICAEW white paper also needs to give equal weight to reducing public sector excessive pay (17% of the UK's workforce) in councils, universities, heathcare, the civil service and central bodies including London's TFL, City Hall where managers and heads are over-remunerated at the expense of workers on grade structures, and whilst providing delinquent and costly services to communities. The excesses of the private sector have seeped into the public sector over the last 40 years and the government is encouraged by ICAEW (as boards in private companies) to urgently address this inequality with the many levers at their disposal.
Great to see this thorny issue being dealt with in such a considered, rounded way. I believe the issue is fundamentally around growing inequality, especially over a decade when many have seen little or no increase in pay in real terms and the growth of zero hours contracts and the gig economy for many lower paid roles, mean many people feel worse off. As a society, we may decide that it is right to pay a Doctor or a FTSE 350 Finance Director 10 times the amount a Delivery Driver or a Care Assistant earns but problems will arise if those ratios grow significantly without any obvious justification. Unfortunately, that's what has been happening over many years, especially since the 1980s. The ICEAW paper seems to me to be a great place to start in trying to move forward with these issues.