Britain’s biggest companies have been ordered to cap sky-high salaries for top bosses and align them more closely with ordinary workers, or face the wrath of a new regulator.
A hard-hitting report from the Business Committee examining the subject claims that soaring CEO pay packages at FTSE 100 firms are a symbol of “corporate greed” and are tarnishing Britain’s reputation.
It is calling for a stronger link to be made between executive and employee pay, citing “huge differentials” in the pay system.
Former Persimmon boss Jeff Fairburn became a poster boy for excessive remuneration last year over his £85 million pay package, which sparked fury among politicians.
The study is urging the new corporate regulator – the Audit, Reporting and Governance Authority – to be “more robust and proactive in bearing down on excessive executive pay” and to get tough with companies that fail to act responsibly.
Committee chair Rachel Reeves said: “The roll-call of dishonourable executive pay decisions at firms including Persimmon, Unilever, Royal Mail, BT, Melrose and Foxtons, tell the all too familiar tale of corporate greed which is so damaging to the reputation of business in our country.
“But these examples also highlight the persistence of executive pay policies where far too little weight is given to delivering genuine long-term value, investing in the future, or ensuring rewards are shared with workers.
“When the company does well, it is workers and not just the chief executive who should share the profits. Why should chief executives have a more generous pension scheme than those who work for them?”
Pensions are likely to be a major flashpoint during AGM season, when pay awards at several companies are expected to come under close scrutiny, with the prospect of shareholder rebellions high.
In recent weeks, the likes of Lloyds, HSBC and Centrica have moved to slash pension perks as anger rises over the discrepancy between chief executive awards versus the amounts workers are entitled to.
The Investment Association said in February that it will monitor and embarrass any company that pays pension contributions to new directors in a way not aligned to the majority of the workforce.
The Business Committee is recommending that the new regulator seeks public explanations from any firm that fails to deliver alignment on pensions contributions.
The report also takes aim at “weak” remuneration committees, arguing they wave through “over-generous”, incentive-based executive pay awards.
To address the failure, it recommends that they should set, publish and explain an absolute cap on total remuneration for executives in any year and allow workers to sit on committees and include staff in profit-sharing schemes.
“When they (remuneration committee) fail, we need a regulator with the powers and mindset to step in and get tough on businesses who pay out exorbitant sums to their CEOs,” Ms Reeves warned.
Over the last decade, chief executives’ earnings in the FTSE 100 have increased four times as much as national average earnings.
Top bosses on the index earn around £4 million per year, while average pay is under £30,000 and the committee is calling for businesses to move executive pay structures away from “unpredictable and excessive bonuses”, with a greater element based on fixed basic salary plus deferred shares.
Ms Reeves added: “Eye-watering and unjustified CEO pay packages are corrosive of trust in business and threaten to undermine the public’s support for the way our economy operates.
“Companies should be assured that the Business Committee will continue to shine a light on executive pay and hold businesses to account for their actions on CEO rewards.”