Theresa May is facing calls for tough action on ‘fatcat’ pay after a new report revealed that bosses’ wages have soared to an average of £6m a year – and are now 150 times that of their workers.
The study by Tory MP Chris Philp and the High Pay Centre found that firms with a big gap between bosses and workers’ wages are also often the worst performers in terms of profits, share prices and other measures.
The inequality gap between average workers and their chief executives has “rocketed”, the report found, doubling in the last 12 years.
Philp calls for a radical plan to curb excess pay, including annual binding votes for shareholders – rather than the three-yearly advisory votes at present - and putting employees on a new shareholder committee overseeing salaries for top executives.
Blogging for HuffPost UK, Philp said: “Public opinion is very firmly of the view that CEO pay is excessive, poorly linked to performance, and counter-productive to staff motivation. The public is right.”
The Tory rising star, himself a former entrepreneur, will present his findings to Downing Street next week as she looks at fresh ways to honour her pledge to tackle inequality and boardroom excess.
Switzerland, Holland and Denmark already insist on annual binding shareholder votes on pay, while Sweden has employee representatives on mandatory shareholder committees.
Philp’s report shows that while FTSE CEO pay has soared by 233% since 2000, their firms’ market value has gone up by only 64% and their profitability by only around 87%.
And while average worker pay has stagnated over the past decade, bosses pay has gone up by around 10% a year, as boards rather than shareholders make the final call on pay rates.
CEO pay was 70 times higher than that of their workers in 2002. But that ratio doubled to 150 times higher, and is back at the rates seen just before the financial crisis of 2008.
The PM yesterday told the Cabinet she wanted to “get tough on irresponsible behaviour in big business”.
May, who today unveiled a new Cabinet committee to ‘make life easier’ for millions struggling on low wages, has vowed that tackling inequality will be at the heart of her premiership.
But City pay continues to defy public opinion, with firms often ignoring sharedholder revolts. Today’s report shows how firms such as BP, WPP and Shire Group went ahead with big pay rises despite ‘advisory’ votes by shareholders.
And in some cases, even when firms agree ‘maximum’ pay rates, companies such as Sports Direct, 3i, BskyB and Berkeley Group have found complicated ways to exceed the limits set, sometimes by more than £15m.
Philp said the real problem lay in the rise “ownerless corporations” where shareholders were disconnected from the impact of unequal pay.
“This is why family-owned and privately owned businesses often perform better than publicly owned companies over the medium and long term,” he wrote.
“Frequently, if public company shareholders are unhappy with a company they simply sell the stock rather than engage with the company to improve it.”
His report was today welcomed by two leading City figures, including influential fund manager Neil Woodford and former Labour Treasury minister Lord Myners.
City manager Woodford said: “I believe the problem is getting worse … The initiatives in this paper represent important steps towards cultivating a more appropriate and valuable form of corporate governance in the UK.”
Myners, a former chairman of Marks & Spencer as well as Labour City minister, said: “Chris Philp’s proposals will not be universally welcomed by either company directors or fund managers because they challenge the existing order that has suited these two communities so well.
“But implementation of his programme would represent a transformational change in the democratisation and accountability of ownership.”
But Mike Fox, head of sustainable investment at Royal London Asset Management, said that while reforms were needed the idea of an annual binding vote “could be detrimental” because it was itself short-termist.
The plan would involve “forcing shareholders to focus on shorter performance periods when evaluating whether performance has merited the remuneration paid to senior executives.”