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Business secretary Greg Clark has suggested that directors of companies with over 250 employees should be forced to explain the pay ratio between the lowest and highest paid workers.

These rules recently unveiled to parliament have already been criticized by Labour and trade unions for not doing enough to tackle the “entrenched inequality” in British companies.

Excessive executive pay

One of the most high profile cases in recent years was the high sum paid to former WPP boss Martin Sorrelll who received £70m in 2015, and a total of £200m over the space of five years.

He was forced to take a pay cut to less than £20m after a third of shareholders opposed Sorrel’s £70m pay out in 2015.

Other shareholder revolts over excessive pay have been recently seen at companies including Lloyds, Shell, Playtech, William Hill and AstraZeneca.

These proposed rules will also require companies to show how share prices have affected executive pay so that shareholders are better informed when voting for incentive plans.

Clark said: “Most of the UK’s largest companies get their business practices right, but we understand the anger of workers and shareholders when bosses’ pay is out of step with company performance.”

More needed

Frances O’Grady, TUC’S general secretary said that publishing details about pay ratio is a good first step but more was needed.

“Fat-cat bosses are masters of self-justification and shrugging off public outcry. New rules are needed to make sure they change.

“We need guaranteed places for worker representatives on boardroom pay committees. That would bring a bit of common sense and fairness to decision-making when boardroom pay packets are approved.”

However, it has been met with more positive reactions elsewhere. Luke Hildyard, director of the High Pay Centre said that this pay ratio could become useful to workers and investors. “We hope that [the move] will initiate a more informed debate about what represents fair, proportionate pay for workers at all levels.”

Matthew Fell from the Confederation of British Industry suggested that this could help to ensure that high pay is in line with high performance. “This legislation can help to develop a better dialogue between boards and employees about the goals and aspirations of their business, and how pay is determined to achieve this shared vision.”

If this new legislation is approved by parliament, companies would be expected to start their reporting in 2020.

 

What do you think of this new proposal? Would you like to see more information about executive pay? Let us know your thoughts.

About The Author

Kara Copple

An experienced business and finance writer, sometimes moonlighting as a fiction writer and blogger.

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