A group of over 20 leading academics with expertise in areas including CEO pay, business management and economic inequality have written to the UK’s biggest investment firms and pension funds in a letter co-ordinated by HPC highlighting the risks associated with increased executive pay awards.
The letter follows claims by the London Stock Exchange and a number of business leaders that higher top pay awards would improve the competitiveness of the UK economy. The academics have expressed reservations about these claims arguing that:
- There is limited evidence, beyond individual anecdotes, of UK companies failing to attract or retain key executives because of low pay levels
- The link between higher executive pay and better business performance remains questionable
- Any shortage of capable candidates for executive roles should also prompt scrutiny of companies’ leadership training and development processes
- Top pay increases for senior staff could have opportunity costs in terms of, for example, pay for low and middle income workers or investment in the business.
- Wider pay gaps between executives and ordinary workers could have a negative impact on employee engagement, productivity and ultimately business performance that should be considered alongside the arguments for higher top pay
- Higher executive pay at major employers could trigger an increase in income inequality, leading to socio-economic problems that would damage the UK’s long-term prospects of economic success
The letter does not express blanket opposition to higher executive pay at all companies, but instead recommends that investors treat proposals for top pay increases with appropriate scepticism before choosing whether or not to support them on a case-by-case basis.