AFTER warning that the system by which shareholders vote on executive pay is “broken”, the Church of England Pensions Board has launched a tool to forged light on how top firms pay their CEOs.
Developed over the past two years with a gaggle of UK asset-owners and the High Pay Centre, and announced last week, the Fair Reward Framework is a free online database recording how FTSE 100 firms perform against a series of measures. These include CEO pay compared with the median worker throughout the company, whether the corporate is an accredited Real Living Wage employer, and whether there may be “disclosure related to the broader workforce being consulted in a meaningful way as a part of the manager pay setting process”.
It also records whether there was “significant” levels of shareholder opposition to a pay-related resolution at the corporate’s AGM over the previous three years.
To date, data for 65 firms have been published. The median CEO-to-employee pay ratio across the sample was 75:1, while the best was 431:1 (Tesco), and the bottom was 13:1 (St James’s Place). A complete of 57 per cent were accredited Living Wage employers. Only six per cent disclosed details of meaningful consultation, while 23 per cent had experienced “significant shareholder dissent” on remuneration.
A Pensions Board press release said that whether high pay was justified “should be viewed within the context of the method that firms undergo to achieve these decisions, in addition to the outcomes experienced by different stakeholders — including the bottom paid”. Clare Richards, director of social aspects, said that the framework would make a “key contribution” to the Board’s decisions when it got here to voting at AGMs on executive pay.
At AGMs last 12 months, the Pensions Board voted 40 per cent of the time against the pay recommendations of management, and against the management of 32 UK listed firms because they weren’t Living Wage accredited employers.
While the brand new framework provides shareholders with access to information, the concerns expressed by the Board’s chief responsible-investment officer, Adam Matthews — who, in 2022, suggested that the system wherein investors voted on executive pay was “broken” (News, 15 December 2022) — relate, slightly, to firms’ responses.
“When shareholders vote against excessive pay, boards often disregard investor concerns,” he said. “Votes on remuneration reports are advisory, and corporations often simply seek more engagement, but we all know little will fundamentally change.” He made a plea to “hold chairs of remuneration committees accountable”, and suggested reviewing “whether investors need a binding, slightly than advisory, vote on the outcomes of pay policies”.
The recent framework’s indicators include whether an organization’s remuneration committee is “100 per cent independent”, and whether it has adjusted pay upward or downward. One third (34 per cent) of remuneration committees adjusted pay awards previously two years — most of them downwards.
The current policy of the Church’s national investing bodies on executive remuneration, dated August 2024, doesn’t specify a universal “right” internal pay ratio, but expresses the hope that firms “take decisions on remuneration across the corporate holistically, as a matter of corporate culture and values, and with awareness of the potential impact of differentials on staff motivation, social inequality and social cohesion”.
Among its principles is that pay differentials which are higher than those of peers, despite equivalent business models, ought to be challenged, “as should schemes wherein, over the long run, the remuneration of executive directors rises disproportionately to that of other staff”.
It suggests that asset managers (who dominate shareholder voting) and remuneration committees “don’t feel that they’ve an ethical role, or mandate, to set limits on remuneration if corporate performance has been good”. Asset managers are themselves high payers, it notes; “so it is just not normally of their interests to challenge high levels of remuneration or the bonus culture.”
According to the High Pay Centre and the Chartered Institute of Personnel and Development, the median full-time employee within the UK earns a gross annual salary of £29,574, while the median FTSE 100 CEO earns £3.9 million. In 1998, the ratio of median FTSE 100 CEO pay to the median pay of full-time employees within the UK was 47:1. In 2018, the ratio was 132:1.
