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Investors encouraged to challenge fat cats' salaries

31 October 2014

SHUTTERSTOCK

COMPANIES paying their chief executives more than 100 times the pay given to their average employee need to be challenged by investors armed with questions that will penetrate the opacity of annual reports. This is one of the conclusions of a new report from the Ecumenical Council for Corporate Responsibility (ECCR).

The report, Using Ethical Investment to Close the Gap, published on Monday, notes that, today, the average FTSE 100 CEO earns approximately £4.7 million per year, 130 times the average FTSE 100 employee. In 1970, the differential was approximately 10:1.

It acknowledges that "few companies are prepared to make disclosures that would genuinely help investors understand how pay decisions are made, and make informed judgements about whether or not pay is disbursed fairly across the company". But it provides a list of questions that investors can ask, including scrutiny of the ratio of payment between those at the top and the average worker.

"For too long investors have presided over a corporate system that over-rewards the elite whilst leaving many employees at poverty level," the executive director of ECCR, John Arnold, said. "We want individual and institutional investors to join their church-investor colleagues, and revisit their responsibilities, as owners of businesses, to challenge companies to tackle low pay and insecure work."

Just 15 of the FTSE 100 pay the Living Wage. The new Living Wage rate is due to be announced next week. On Monday, the Resolution Foundation reported that the proportion of employees in low-paid work (two-thirds of median hourly pay: £7.69 an hour) increased from 21 to 22 per cent last year, to 5.2 million. It concluded that the UK had among the highest proportion of full-time, low-paid workers across the OECD.

Last week, the Social Mobility and Child Poverty Commission called on the Government to "forge a new settlement" to make Britain a Living Wage country by 2025. In its second annual report, it warned that, plagued by "endemic levels of low pay", and with millions trapped in dead-end jobs, Britain was morphing into a "permanently divided nation".

It called on the next Government to "draw a line under the old political consensus that the benefits system could be the main source of income growth" for those in low-paid jobs. Employers should pay more, parents should work more hours, and utility companies, financial firms, and retailers, should "end the perversity of the poverty premium which forces the poorest families to pay the highest prices for many of life's essentials".

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