The customer is always right: how to reduce executive rewards with procurement contracts
Government could use its power as a purchaser of outsourced services to demand executive pay restraint
The size of the 'outsourcing market' for public services contracted by the state and delivered by private companies is now worth more than £80 billion.
The top executives of firms such as Atos, G4S, Serco and Capita receive multi-million pound pay packages common to the private sector. Yet these firms depend on public money for a huge proportion of their revenue.
This report argues that because major outsourcing companies' rely on public funding and have a remit to deliver vital public services, it is inappropriate for their executives to be lavished with the kind of payouts common to other large private corporations. As a customer, Government can employ additional leverage over outsourcing companies to set an example in terms of economically and social responsible pay practices.
The report notes that European Union rules on Government contracting specifically permit clauses designed to ensure the optimum benefit to wider society from contract awards. Governments are not simply compelled to seek best value in terms of the immediate financial cost to the public finances. As such, conditions of procurement contracts could include:
- Publication of a pay ratio, including the ratio of top pay to bottom pay.
- A pay cap for any company receiving public contracts over a certain value, either in absolute terms or as a proportion of their revenue. This could be applied on the same principle that the US Government caps pay for federal contractors - contracted organisations cannot bill for staff time at a higher rate than the President's salary of $400,000
- Imposition of a maximum pay ratio in any private sector company providing public services. This could initially be set at a rate of 90:1 but be decreased over a period of 10 years.
- Worker and consumer representatives to be included on the company board of directors.
As these conditions represent a form of consumer activism rather than Government regulation, they have an additional advantage of creating downward pressure on pay in a way that could appeal to voters of different political persuasions.
Since 1 January 2017 the average FTSE 100 CEO has earned:
Income inequality in the UK
Wealth inequality in the UK
- Reality Bites - average FTSE100 CEO pay package down 17% on previous year
Political pressure, public disapproval and campaigning all combined to restrain pay at the top in 2016. But what next?
- CIPD/High Pay Centre survey of FTSE100 CEO pay packages 2016
Our joint annual survey of the state of top pay in the FTSE100
- A government which has lost its purpose
High Pay Centre response to the Queen’s Speech – 21 June 2017