From the TUC

Is the tide turning on executive pay?

15 Jun 2011, by in Economics

Ed Miliband has put forward two proposals to tackle executive pay, both of which the TUC has campaigned for over many years. In a speech on Monday, the Labour leader said that under a Labour government, companies would be required to publish the ratio of their directors’ pay to average company employee pay.

The gap between top company directors’ pay and the pay of their own employees (and indeed average earnings in the economy as a whole) has risen inexorably over recent years, despite a provision in the Corporate Governance Code that says that remuneration committees should take into account pay and conditions elsewhere in the company.

The case for addressing company differentials is strong. Academic studies have clearly shown that wide intra-company pay disparities are associated with lower company productivity and/or performance. Add to this the wider economic and social costs of inequality and widespread public unease at the distribution of rewards within companies. Disclosure of pay ratios within companies in remuneration reports is surely an idea whose time has come.

The Labour leader also said that companies should consider having workers on their remuneration committees. The TUC has argued for many years that the presence of worker representatives on remuneration committees would bring a sense of perspective and common sense to proceedings and would ensure that pay for directors was decided in the context of pay throughout the company as a whole. Left as a voluntary initiative, however, this is very unlikely to be put into practice; there is nothing in corporate governance terms that would actually prevent companies from including worker representatives on their remuneration committees now.  But it is a welcome sign that the tide is turning on executive pay that this idea is now being floated by the Labour leader.

The TUC set out the case for disclosure of pay ratios in its response to the Government’s Call for Evidence on Long-termism, due to report in the summer. The High Pay Commission is due to report its proposals for tackling executive pay in the autumn. The case for tackling excessive executive pay has always been strong. It is time to move from concerned hand-wringing to a debate about practical measures that will make a difference. On this front, Ed Miliband has made a good start.