AFTER warning that the system by which shareholders vote on executive pay is “broken”, the Church of England Pensions Board has launched a tool to cast light on how top companies pay their CEOs.
Developed over the past two years with a group of UK asset-owners and the High Pay Centre, and announced last week, the Fair Reward Framework is a free online database recording how FTSE 100 companies perform against a series of measures. These include CEO pay compared with the median employee within the company, whether the company is an accredited Real Living Wage employer, and whether there is “disclosure related to the wider workforce being consulted in a meaningful way as part of the executive pay setting process”.
It also records whether there was “significant” levels of shareholder opposition to a pay-related resolution at the company’s AGM over the previous three years.
To date, data for 65 companies have been published. The median CEO-to-employee pay ratio across the sample was 75:1, while the highest was 431:1 (Tesco), and the lowest was 13:1 (St James’s Place). A total of 57 per cent were accredited Living Wage employers. Only six per cent disclosed details of meaningful consultation, while 23 per cent had experienced “significant shareholder dissent” on remuneration.
A Pensions Board press release said that whether high pay was justified “must be viewed in the context of the process that companies go through to reach these decisions, as well as the outcomes experienced by different stakeholders — including the lowest paid”. Clare Richards, director of social factors, said that the framework would make a “key contribution” to the Board’s decisions when it came to voting at AGMs on executive pay.
At AGMs last year, the Pensions Board voted 40 per cent of the time against the pay recommendations of management, and against the management of 32 UK listed companies because they were not Living Wage accredited employers.
While the new framework provides shareholders with access to information, the concerns expressed by the Board’s chief responsible-investment officer, Adam Matthews — who, in 2022, suggested that the system in which investors voted on executive pay was “broken” (News, 15 December 2022) — relate, rather, to companies’ responses.
“When shareholders vote against excessive pay, boards often disregard investor concerns,” he said. “Votes on remuneration reports are advisory, and companies often simply seek more engagement, but we know little will fundamentally change.” He made a plea to “hold chairs of remuneration committees accountable”, and suggested reviewing “whether investors need a binding, rather than advisory, vote on the outcomes of pay policies”.
The new framework’s indicators include whether a company’s remuneration committee is “100 per cent independent”, and whether it has adjusted pay upward or downward. One third (34 per cent) of remuneration committees adjusted pay awards in the past two years — most of them downwards.
The current policy of the Church’s national investing bodies on executive remuneration, dated August 2024, does not specify a universal “right” internal pay ratio, but expresses the hope that companies “take decisions on remuneration across the company holistically, as a matter of corporate culture and values, and with awareness of the potential impact of differentials on staff motivation, social inequality and social cohesion”.
Among its principles is that pay differentials that are higher than those of peers, despite equivalent business models, should be challenged, “as should schemes in which, over the long term, the remuneration of executive directors rises disproportionately to that of other staff”.
It suggests that asset managers (who dominate shareholder voting) and remuneration committees “do not feel that they have a moral role, or mandate, to set limits on remuneration if corporate performance has been good”. Asset managers are themselves high payers, it notes; “so it is not normally in their interests to challenge high levels of remuneration or the bonus culture.”
According to the High Pay Centre and the Chartered Institute of Personnel and Development, the median full-time worker in the UK earns a gross annual salary of £29,574, while the median FTSE 100 CEO earns £3.9 million. In 1998, the ratio of median FTSE 100 CEO pay to the median pay of full-time employees in the UK was 47:1. In 2018, the ratio was 132:1.