The High Pay Centre (HPC) has launched a new, free online database analysing pay practices and policies of top FTSE 100 companies, including how much CEOs are paid compared to senior and junior employees.[1] The HPC is a non-aligned think tank that conducts policy-oriented research and analysis on the causes and effects of economic inequality in the UK. The think tank collaborated with several asset owners (including pensions partnerships and a prominent insurance company) to create its new Fair Reward Framework (FRF) database.
The FRF provides publicly available practice and policy information on more than 60 companies which are assessed based on indicators measuring fairness and proportionality of employment policy and practices.
These indicators, identified by asset owners and members of the public consulted by the HPC during the creation of the FRF, include (but are not limited to):
- quantitative pay outcomes
e.g. how much the CEO gets paid compared to a junior level employee;
e.g. how much a senior male employee is paid compared to a senior female employee; and
- qualitative pay governance policies and procedures
e.g. whether the company is an accredited living wage employer;
e.g. whether the company consults with workers before setting CEO pay caps.[2]
The HPC hopes that visually displaying company data with ticks beside companies that satisfy their quantitative pay outcome and qualitative pay governance process indicators will meet stakeholder demand for greater visibility and understanding of pay policies and procedures. To that end, the FRF does not make recommendations for specific action for companies to take, nor does it give voting recommendations for shareholders. The main purpose of the FRF is to inform investors, corporate advocates, academics, journalists and individuals about how various companies are currently implementing pay practices.
The FRF’s emphasis on fair and proportional pay outcomes reflects ongoing criticism of executive pay levels. Recent research by SCM Direct and the Evening Standard has found that a number of the UK’s highest paid CEOs have seen their companies’ shares plummet since 2021.[3] Clarkson PLC remains top of the list for having the highest paid CEO, but its shares have decreased by 20%.[4] This trend is one that has been repeated by numerous FTSE 100 companies,[5] and has caused many, including SCM Direct, to question the “weak” correlation between CEO pay and share price performance.[6]
The HPC has also published a report arguing that it has become more difficult to increase salaries of employees due to CEOs being overpaid. The report makes a number of proposals for the Government to consider, including:
- ensuring companies include at least two workforce representatives on committees that determine pay for executives; and
- ensuring companies provide greater pay transparency by requiring them to provide more detailed disclosure of executive pay and, for comparison purposes, the pay rates of low earners, including third party workers.
The HPC suggests that implementing these measures will help to disburse pay at all company levels more equitably.
The controversy surrounding some CEO pay is one that is not cooling off and there is increasing demand for scrutiny of the fairness of pay policies, procedures and outcomes. Companies should be mindful of how their pay processes will be perceived and consider taking steps to increase the transparency of such processes.
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[2] Fair Reward Framework “Pilot year 2024 methodology (version: September 2024)”.
[3] The Standard “Top CEO pay ‘not linked’ to shareholder returns” dated 19 September 2024.
[4] ibid.
[5] High Pay Centre “FTSE 100 CEO pay reaches new high” dated 11 August 2024.
