How to end excessive pay?

Everybody has an opinion on executive pay, and we want to hear what you think and why.  

Politicians and journalists often say that there has been a market failure, and remuneration committees, institutional investors and remuneration consultants get the blame. The company boards who are ultimately responsible for executive pay seem unwilling or unable to change. Unfortunately it can be safer to ignore anxiety and shelve good intentions.  Sticking with remuneration schemes which are tried and tested is the best way to avoid attention.

At the centre of this debate are key questions around whether business leaders add sufficient value to justify what they get paid, and the fair distribution of wealth in the workforce. Only acknowledging that there is a problem in egregious cases of 'rewards for failure' is insufficient, but where do we go from here? 

Following in the footsteps of the US, UK listed companies will soon be required to publish a simple ratio which compares CEO pay with the pay of median pay of UK employees.  Will ratios prompt a mature national conversation on pay, or will there be an exodus of talent from the UK?  

Our paper on how to end excessive pay challenges boards to not give up on the tricky issue of executive pay. Boards can no longer attempt to delegate their responsibility to committees or advisers. Responsible boards must roll up their sleeves and take a fresh look at this issue, and they must keep an open mind about whether they can justify current pay levels or whether change is needed.  We have suggested a ten point action plan for boards which includes inspirational real-life examples. Boards which don't follow all of the steps risk continuing criticism, and this fuels the decrease in trust in business. Inertia also puts the UK's reputation as an international leader in corporate governance in jeopardy.  

Do you agree that failure to act is no longer an option, or are you concerned that the issue has been exaggerated for political or other ends? If you think we've got it right then please say so, but we're just as keen to hear why we've got it wrong, especially if we've missed alternative approaches which will put an end to excessive pay more quickly or efficiently.

  • This is such an emotive and challenging topic and in today's society it is hard to justify some of the numbers that people are paid in comparison to the UK's average. But that does not mean that we should assume that all Main Board Directors are over paid.

    If we compare the average salary of a Main Board Director to other experts in their field - actors, newspaper editors, musicians, sports stars, investors, Accountancy Partners, catwalk models and so on, then the rewards they get look less 'excessive'. And if you compare what them to their counterparts in the US the same is true. Excessive is a word that requires comparison and yet these comparisons are rarely made.

    Secondly - the solution needs much greater dialogue between shareholders and Boards. Yet this does not happen enough. And it requires a common view to be adopted by shareholders. To give one example - LTIP v restricted stock. Many, many remuneration committee's would love to move from LTIP to restricted stock. It would reduce the overall remuneration quantum substantially and would help drive longer term focus. But many shareholders won't move to that scheme because the governance arms worry about payments made in the event of the share price falling. Well - you can't have it both ways.

    This is a very vey complex subject which we can't solve with simple one liners. If your policy is comply or explain, then people have to be open to an explanation.
  • Recent quote by Rachel Reeves MP who chairs the BEIS Select Committee who are looking at executive pay:

    "Executive pay at Persimmon is a tale of corporate greed and incompetent pay management, financed on the back of a tax-payer funded housing scheme. Persimmon paid out huge bonuses to the men at the top of the firm and yet this morning we have heard that Persimmon are unable to tell us how much average workers at the company are paid. If Persimmon can pay their Chief Executive £45 million, they must ensure they pay all their staff the Living Wage. As a Committee, we shall continue to take a close eye to the issue of corporate pay and examine what impact Government action, such as pay-ratio reporting, and new regulatory guidance is likely to have on delivering fair pay".