New High Pay Centre report analysing the policy responses to excessive pay in different economies
UK lagging rivals in efforts to tackle executive pay
New analysis published by the High Pay Centre shows that the UK is falling behind its rivals in tackling inequality and high levels of executive pay.
Since the onset of the financial crisis, executive pay levels have caused widespread public outrage, as top pay has continued to increase, while the wages of ordinary workers stagnate. The report comes amidst growing evidence that shareholder votes on executive pay are not reducing undeserved awards, after controversial pay packages at companies such as Barclays, Centrica and Shell were approved at recent company AGMs.
The UK was one of the first countries to propose a shareholder vote, or ‘say on pay’ , but similar measures are now planned for most major economies.
The High Pay Centre report argues that ‘say on pay’ alone is ineffective, because voting is controlled by wealthy investment fund managers, who also benefit from a culture of high pay.
Thus far, the UK has rejected stronger measures undertaken by other countries.
- In Germany executive pay is now set by company supervisory boards, including democratically-elected employee representatives
- France, Germany and the USA have all introduced salary caps for the executives of companies receiving Government bailouts, unlike the UK, where multi-million pound pay packages at taxpayer-supported banks such as RBS and Lloyds continue to cause outrage.
- France plans to introduce a 20:1 pay ratio between the highest and lowest earners at all companies in which the French state is the majority shareholder. The Dodd-Frank Act in the USA also contains a provision requiring companies to publish their pay ratio
- Switzerland has banned so-called ‘golden hello’ and ‘golden parachute’ payments, awarding executives unconditional multi-million pound payments, simply for accepting or leaving a job
The report also found that while there are over 400 people earning over £1 million at Barclays, a single UK bank, there are less than 300 executives paid a similar amount across the whole of Japan!
The importance of humility and solidarity in Japanese culture, and the stigma attached to greed and excess, means that Japanese executives traditionally make much lower pay demands than their British counterparts, despite the fact that there are more than twice as many Japanese corporations in the Fortune 500 list of the world’s biggest businesses.
High Pay Centre Director Deborah Hargreaves said: Our report highlights a number of ways that the Government could begin to tackle undeserved and socially-divisive levels of executive pay. The UK has historically led the world in standards of good corporate governance and responsible business practices, but we are now falling behind. This situation urgently needs correcting.
Any market that suggests there are more talented individuals working at Barclays than across the entire Japanese economy is clearly failing.’
Notes to editors:
- Analysis from PricewaterhouseCooper’s estimated that less than 300 Japanese business leaders would be effected by new regulations requiring companies to disclose the pay of executives earning more than 100 million yen (roughly $1.1 million). This year, Barclays revealed that they pay 428 employees over £1 million In the UK, the pay of a FTSE 100 Chief Executive increased from 40 times that of an ordinary worker in 2000 to 185 times in 2011, despite an overall decline in share prices
- Rising executive pay has helped increase the share of income going to the richest 1% has increased from 6% to 14% since 1979 – a number of top economists have suggested that this change poses a threat to the UK’s prosperity, by concentrating money in the hands of the super-rich, who horde it, rather than low and middle earners, who spend it in the productive economy.
- For further information, please contact High Pay Centre Head of Research Luke Hildyard via luke.hildyard@highpaycentre.org or on 07859 015543