Investors will only curb CEO pay if forced
Bosses’ average pay was 120 times that of a full-time employee on the median wage
Jan 8, 2018
Companies will in the coming months have to disclose the pay ratio between their CEO and an average worker.REUTERS/Toby Melville
By Aimee Donnellan
LONDON (Reuters Breakingviews) - If there is a will there is a way, when it comes to restraining chief executive pay. The bosses of Britain’s biggest companies have on average taken a pay cut, according to a report published on Thursday. But the discipline will fade unless a weakened government can maintain pressure on shareholders to demand moderation.
The bosses of Britain’s top 100 companies on average earned 17 per cent less in 2016 than they did a year earlier, according to a report by the Chartered Institute of Personnel and Development and the High Pay Centre. But there’s little reason to pity the top dogs. Bosses’ average pay was 120 times that of a full-time employee on the median wage. As a result, the former earned as much in the first three working days of the year as the latter will make over the whole of 2018.
No wonder some in the opposition Labour party are calling for a cap on this pay ratio. That would be a blunt instrument that leaves companies less scope to reward star bosses who manage risky turnarounds. And investors are proving they can flex their muscles when they want.
BlackRock, the world’s largest asset manager with UK$5.7 trillion under management, told the chairmen of more than 300 UK companies a year ago to cut excessive pension entitlements and curb pay rises for their CEOs. Other large fund managers have told Breakingviews that they warned companies such as BP that overly generous pay rewards would be blocked.
But that doesn’t mean shareholders can be left to their own devices. They only really began to ramp up the pressure after Prime Minister Theresa May in 2016 raised the possibility of appointing workers to boards as a way of reining in pay. A subsequent election weakened her government but not necessarily the pressure to curb high pay.
Companies will in the coming months have to disclose the pay ratio between their CEO and an average worker. The numbers could well fan public outrage and revive talk of policy changes. If investors don’t clamp down on high CEO pay on their own, they may be forced to do so.
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