Companies must do more to link top bosses’ pay to that of the rest of their workforce, says the Business, Energy and Industrial Strategy (BEIS) Committee in a new report.
Referencing “shaming” executive pay decisions such as those at Persimmon, Royal Mail and Unilever, the report says that “huge differentials” in bosses’ pay are “baked into the pay system”. A heavy reliance on “over-generous”, incentive-based executive pay, too often waved through by weak remuneration committees in the habit of designing ever more complicated pay packages, is at the root of excessive executive pay packages, says the BEIS committee.
The report notes that over the last decade chief executives’ earnings in the FTSE 100 have increased four times as much as national average earnings. FTSE 100 chief executives earn around £4 million per annum while average pay is under £30,000. The report calls 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.
To help tackle excessive pay awards and deliver fairer rewards across businesses, the BEIS committee calls for a stronger link to be made between executive and employee pay, recommending businesses make greater use of profit-sharing schemes, and that companies are required to appoint at least one employee representative to their remuneration committee.
Rachel Reeves MP, chair of the BEIS committee, said: "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.
"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."
