A High Pay Centre briefing providing some information and ideas on how investors can use the new pay ratio disclosures that now appear in UK-listed companies’ annual reports
This briefing provides some information and ideas on how investors can use the new pay ratio disclosures that now appear in UK-listed companies’ annual reports.
The ratios set out how pay is distributed across the company’s UK employees, showing the pay for the CEO plus that of the upper quartile, median and lower quartile employee (on a full-time equivalent basis).
This provides an interesting new insight for investors into the business models and corporate cultures of the companies they invest in. It enables comparisons in pay between not just the CEOs of similar companies, but also of their employees, and enables measurement of employees’ pay against recognised benchmarks such as the Real Living Wage, as calculated by the Living Wage Foundation.
Companies associated with low-paid work are at higher risk of reputational problems, as well as industrial disputes and employee engagement issues such as higher staff turnover and absenteeism, higher recruitment and training costs and lower productivity. The pay ratio disclosures could help investors to better identify where these risk factors are highest.
Our briefing sets out how investors can use the pay ratio disclosures in a one-page summary
providing recommendations for:
- Monitoring pay ratio disclosures in annual reports;
- Engagement with companies whose disclosures provide grounds for concern;
- Voting at the AGMs of companies when engagement fails to achieve a progressive
resolution.
The briefing also provides a summary of data from the first pay ratio disclosures, published in 2020, as well as recent CEO pay awards, that may be useful in terms of benchmarking pay levels reported in 2021. It also sets out the High Pay Centre view on prevailing pay practices, and the heightened case for treating inequality as a systemic risk, and for more active investor stewardship over fair pay as we (hopefully) exit the pandemic.
We hope that investors will find the recommendations and the data to be a useful complement to their stewardship activities.