News | Published March 26 2019

Bosses pay should be linked to employees' wage, says select committee

The Business, Energy and Industrial Strategy Committee have called for companies to do more to link top bosses’ pay to that of the rest of their workforce.

In a report published today, the committee criticised “excessive” executive pay packages which they describe as “reputationally damaging” and fuelling “a perception of institutional unfairness.”

If these concerns are left unaddressed, the committee state they are “liable to foment hostility and undermine social cohesion.”

The report highlights that in the last ten years, chief executives’ earnings in the FTSE 100 have increased “four times as much as national average earnings.” 

These executives earn roughly £4 million annually while average page is under £30,000. The report specifically highlighted recent executive pay decisions made by Persimmon, Royal Mail and Unilver which they described as “shaming.” 

The committee described the decision to accept a payment of £75 million to the chief executive of Persimmon as “the most egregious of a number of shaming decisions.”

In order to address these issues, the report calls for a reduction in incentive-based pay elements, stating that they do not “effectively drive decision making in the long-term interests of the company.” 

They also advocate a stronger link between executive and employee pay through the use of profit-sharing schemes.

In a highly critical assessment, the committee stated that they “do not have confidence” in remuneration committees and called for a “tougher, more proactive regulator.” 

On this note, they “welcomed” the replacement of the “underpowered and passive” Financial Reporting Council with a tougher alternative.

Beyond this, they stated that strengthening links between executive and employee pay could be achieved by placing an employee representative on these committees. 

They also called for an absolute cap on the amount of total remuneration executives can receive in a year to be set by these committees.

The chair of the committee, Rachel Reeves, commented: “Eye-watering and unjustified CEO pay packages are corrosive of trust in business and threaten to undermine the public’s support for the way our economy operates. 

"The roll-call of dishonourable executive pay decisions at firms including Persimmon, Unilever, Royal Mail, BT, Melrose and Foxtons, tell the all too familiar tale of corporate greed which is so damaging to the reputation of business in our country.”

She added: “When the company does well, it is workers and not just the chief executive who should share the profits. Why should chief executives have a more generous pension scheme than those who work for them?

“Public scrutiny has often had more influence than investors or remuneration committees in getting companies to reverse outrageous executive pay decisions. The glare of publicity cannot be the only weapon in the armoury, but companies should be assured that the BEIS Committee will continue to shine a light on executive pay and hold businesses to account for their actions on CEO rewards".

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Authored by

George Salmon
Political Editor
March 26 2019

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