Things haven’t been going terribly well for the Government, capped this week by official figures making clear that, thanks to its mishandling of Brexit, it is presiding over the slowest growing developed economy, and one of the worst performing in the world.
The reports suggesting that next week will see the arrival of a long awaited package of corporate reforms, including measures designed to crackdown on CEO pay, need to be seen in that context. It’s an attempt to get back on the front foot. A re-launch of Theresa May’s “country that works for the many not just the few”.
If they are correct, on the table will be a plan to name and shame companies which have suffered shareholder votes of 20 per cent or more against executive pay. They will find themselves placed on a register. There may also be a requirement upon public companies to publish pay ratios. That is, the multiple between the chief executive’s pay and that of their average UK worker.
These reforms fall a long way short of what Ms May once promised. Opposition from the City, and the Chancellor Philip Hammond, has killed off putting workers on boards (a common and uncontroversial practice in Europe) along with forcing binding votes on executive remuneration were companies to suffer votes of 20 per cent or more against their remuneration reports. Mr Hammond is the dentist who has stripped the proposals of their teeth.
A register of pay bad boys, a sort of corporate naughty step, will be convenient for watchdogs, and to people like me, because it will gather the rogues in one place and make them more visible.
But anyone who wanted to can create something very similar could do so now simply by monitoring AGM statements, as organisations like voting advisor Pirc do. All the information is out there.
Being on the list might not even be that embarrassing if there are lots of other companies on it with you.
The enforced publication of pay ratios, to be fair, some businesses already do it, has more potential.
The idea isn’t without its flaws. The ratio of a business like Tesco, which lots of relatively modestly paid staff, could, for example, look very much higher than, say, a company like Barclays, which has a big investment bank full of highly paid staff, even if the CEO is paid a lot less.
However, Stefan Stern, from the High Pay Centre, made a very good point when we talked the idea through. Since it has been around, he said, the ratio has helped re-establish in the public mind a link between the CEO and the average employee. A statutory requirement to publish could reinforce that.
Now, readers of a certain age may remember how the former British Gas boss Cedric Brown acquired the unfortunate nickname of “Cedric the Pig” when his salary was hiked by 75 per cent at the end of 1994 as the company was sacking staff. After his raise he got £475,000, a bit above £750,000 in today’s money.
By contrast, Iain Conn, who as the CEO of Centrica is the current British Gas boss, saw his pay bumped up by nearly 40 per cent last year, which took it to £4.15m, more than five times that figure. It’s not sacking staff that has British Gas causing controversy today. It is the way it has hammered the average family by hiking their electricity bills by 12.5 per cent. Who’s the pig now?
You could find similar examples by delving into the pay reports of almost any big British business that was around then and is still with us.
In the intervening years, CEOs have come to be seen almost as alien super beings, perhaps like Star Trek’s Vulcans. The fact that their packages are utterly illogical (captain) when set against the fact that there is no evidence that they are justified by any measure of economic or business performance seems not to matter.
What the ratio makes clear is that CEOS, and other execs, are not supermen or women, nor anything like it. They are not a different species, and they are not Vulcans with green blood and computer like brains. They are employees. Senior employees, but employees nonetheless.
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Mr Stern thinks it’s possible that that the widespread publication, and reporting, of pay ratios could, ultimately, moderate the behaviour of pay setting remuneration committees, although it will take time. There are, however, no guarantees.
Ultimately, it will require a certain embarrassment and shame over paying one employee 200 or more time the average employee for RemCos to act more sensibly, plus a willingness to resist the demands of big time CEOs with big egos and little in the way of a sense of shame.
And as the former TUC boss John Monks once said to Mr Stern: “How do you shame the shameless?”