Executive Pay: Employers told to publish wage ratios

The UK government has said that tackling corporate excess is a priority in the wake of the collapse of high street retail chain BHS.

The UK government has outlined its long-anticipated plans to try and make employers justify high levels of executive pay.

The proposals, which form part of its Green Paper on corporate governance reform, follow widespread anger over the collapse of high street retail chain BHS, with the loss of 11,000 jobs and a large pension deficit.

The plans include introducing measures such as pay ratios to illustrate the earnings gap between chief executives (CEOs) and the average employee. According to the High Pay Centre, CEOs of FTSE 100 companies now benefit from a median pay package of £4.3 million, which is 140 times higher than the average worker.

Business Secretary Greg Clark told the BBC: “There may be some circumstances where that is defensible, but it should be for the boards of companies and executives to justify that.”

The UK was not alone in trying to address pay ratios, with the US preparing to report them at the start of next year too, he added.

But businesses have warned about the difficulties in comparing pay ratios in companies across different sectors. Former Business Secretary Vince Cable dropped plans in this area four years ago due to what he called the “Goldman-Waitrose issue”.

This means that, thanks to the very high pay of the average banker, Goldman Sachs appears to be a more equitable company than retailer John Lewis, which is employee-owned.

Other suggestions in the consultation paper include providing shareholders with more frequent, binding votes in relation to bosses’ pay deals. “The right thing is to give greater powers to shareholders to do their job in holding executives to account,” Clark said.

But Prime Minister Theresa May backtracked on her controversial plans to force companies to appoint employees to their boards. Instead, the proposals suggest giving a “stronger voice” to workers by requiring organisations to appoint non-executive directors or advisory panels in order to represent staff interests in the boardroom.