A parliamentary committee has said that companies should have an employee representative on their remuneration committees to keep a lid on excessive executive pay levels.
The report “Executive Pay Levels: paying for success” by the Business, Energy and Industrial Strategy Committee notes that over the last decade, the salaries of chief executives in the FTSE 100 have increased four times as much as the national average. Currently, the average CEO is paid around £4 million per annum, while workers can expect to earn around £30,000 per annum.
Referencing “shaming” executive pay decisions such as those at Persimmon, Royal Mail and Unilever, the report says that “huge differentials” in bosses’ pay are “baked into the pay system”. A heavy reliance on “over-generous”, incentive-based executive pay, too often waved through by weak remuneration committees in the habit of designing ever more complicated pay packages, is at the root of excessive executive pay packages, says the Committee.
To help tackle excessive pay awards and deliver fairer rewards across businesses, it is therefore calling for a stronger link to be made between executive and employee pay, recommending that businesses make greater use of profit-sharing schemes.
In addition, it recommends that companies be required to appoint at least one employee representative to their remuneration committee. That remuneration committees should also set, publish and justify an absolute cap on total remuneration for executives in any year.
On pensions, the report welcomes the Investment Association’s recent announcement that it will monitor and flag up any company that pays pension contributions to new directors in a way not aligned to the majority of the workforce and recommends that the new regulator seeks public explanations from any company that fails to deliver alignment on pension contributions.
While welcoming the introduction of new requirements to publish pay ratios, the report recommends that reporting requirements be expanded to include all employers with over 250 employees and that data on the lowest pay band be included alongside the quartile data required.
Emma Game of Thompsons Solicitors commented, “the difference in pay between company directors and the rest of the workforce continues to grow and this is an issue that needs to be taken seriously. Thompsons strongly support representation on remuneration committees to enable workers’ interests to be properly represented."
The report can be read in full here.