The current government is seeking to make the rules on chief executive pay even more strict to try to address the pay gapOne of the things that became clear from the banking crisis of 2007/08 was that the bosses of some of Britain’s biggest banks were enjoying high levels of pay, just as the banking world entered turmoil and crisis with the collapse of Northern Rock and the government intervention in Lloyds TSB and Royal Bank of Scotland. This led to questions being asked by the government and parliament, not only about the high levels of pay for the chief executives of banks but also the chief executives of FTSE 100 companies. Here we look at what the government is trying to do about this and what it hopes to achieve.
Back in 2013, the Conservative/Liberal Democrat Coalition introduced rules so that large public companies would be more accountable to shareholders and their employees. The rules included the introduction of a binding three-year pay policy that had to be voted on by shareholders, showing how the pay of the chief executive related to the pay of an employee, and overall clearer reporting of the pay of chief executives.
The current government is seeking to make the rules on chief executive pay even more strict to try to address the pay gap between the chief executives and the ‘workers’ in a FTSE 100 company.
A survey by Deloitte suggests that FTSE 100 companies are already reining in their pay and bonuses to try to pre-empt any further changes. Pay for the chief executives of FTSE 100 companies fell by one-fifth between 2016 and 2015, with the median pay – including bonuses and other incentives – falling from £4.3m to £3.5m. Despite this, a report by the High Pay Centre claimed it would still take the average employee 160 years to earn the equivalent of a year’s pay for a FTSE 100 chief executive.
This is the crux of the whole issue – the widening gap between the ‘bosses’ and the ‘workers’ in terms of pay and standard of living. During times when ordinary people saw no real wage growth, the pay of chief executives and other management within the FTSE 100 was increasing.
Protests about this took place at a number of shareholder meetings in 2016, with larger shareholders voting down pay deals that were being offered to management and chief executives. This is what the government is seeking to address with the proposed new curbs on management pay in public companies.
It remains to be seen whether these proposals will have any ‘teeth’. There is already talk that the original proposals have been watered down as a result of lobbying by business leaders.
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