It has been an interesting summer…
Last week we finally heard back from the government on its plans for further corporate governance reform. The deadline for responses to the government’s original green paper was in February, long before June’s general election, which produced such an unexpected result. It had been feared that the chances for reform had been lost along with the government’s majority.
But then on 29 August details of the proposed reforms were released (see link here)
https://www.gov.uk/government/news/world-leading-package-of-corporate-governance-reforms-announced-to-increase-boardroom-accountability-and-enhance-trust-in-business
While many in the press and elsewhere have been underwhelmed by the announcement, it does represent a further, careful step in the right direction – and in that sense is in keeping with the now 25 year tradition of corporate governance reform in this country, dating back to Sir Adrian Cadbury’s first report. The government could and should have been braver on the question of “employee voice”. Remuneration Committees as currently structured fail to take account of the views of the workforce. (Reforming/replacing the RemCo will be the subject of our next big piece of research, in partnership with the CIPD – see “Other news” below – and kindly supported by the Joseph Rowntree Charitable Trust.)
Most significant of all, from our point of view, was the announcement that the pay ratio between the CEO and the average UK employee will now have to be published by every listed company. We have never claimed that this measure will solve the problem of excessive pay at the top, nor that it will suddenly halt and reverse a trend that has developed over 20 years and more. Unfair or misleading comparisons between pay ratios in very different businesses or organisations should not be made. But finally we will have a meaningful way of tracking the gap in pay between the top and the average employee. Shareholders and other stakeholders will be able to scrutinise these gaps and apply pressure to close them. And this can be done, of course, not just by restraining pay at the top but raising pay for those lower down the scale.
We have been in regular contact with officials at No.10 through the summer, as well as having had the honour of chairing a historic meeting at the BEIS department earlier in the year, with the Sec of State and general secretary of the TUC, among others, in attendance. (“Neddy rides again” – if only for one day.)
The announcement on pay ratios is a great achievement for the original founders of the High Pay Commission (launched in 2010), and for all those people connected with the High Pay Centre since then. Special recognition should go to Deborah Hargreaves, our founder, and Nick Isles, the chair. In November 2015 we published a paper by Paul Marsland called Pay Ratios – Just Do It (link here) https://highpaycentre.org/pubs/pay-ratios-just-do-it
Well, they’re doing it.
Other news
We have moved offices and are now based with our new partners, the Chartered Institute of Personnel and Development (CIPD) www.cipd.co.uk. We have already benefited enormously from the professionalism and expertise the CIPD offers. We did a joint submission to BEIS in February in response to their green paper, and earlier in August co-published our annual survey of FTSE100 pay packages https://highpaycentre.org/pubs/cipd-high-pay-centre-survey-of-ftse100-ceo-pay-packages-2016, which was the main story on the front page of the FT and received vast coverage elsewhere. From now on most of our London seminars and meetings will take place at the CIPD’s Grosvenor Gardens SW1 office. We will also soon be announcing our speaker for the second Bob Gavron Memorial Lecture to be held later this year.
Thanks for your continued loyal support and interest.
Stefan Stern
Director