High Pay Commission launches interim report

FAIR PAY

High Pay Commission launches interim report

Existing attempts to curb top pay have failed. The UK economy needs to explore alternatives such as improving disclosure, reforming remuneration committees and simplifying pay structures. These are among the main conclusions to emerge from an interim report published by the High Pay Commission, an independent inquiry into top pay in the private sector.

Entitled “More For Less: What has happened to pay at the top and does it matter?”, the report is an “extensive audit of the current debate on top pay”. It reveals the dramatic growth in pay experienced by those at the top of the income distribution over the last 30 years and discusses the causes of this growth.

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According to figures cited in the report, between 1949 and 1979 the share of income going to the top 0.1% of earners dropped from 3.5% to 1.3%. “Today, the top 0.1% of earners take home as big a percentage of the national income as they did in the 1940s,” the report says.

It adds: “If we return to trends seen before the crisis, which looks likely, by 2020 the average FTSE 100 CEO will see their pay nearly double to £8 million, while the average wage continues to stagnate. A top executive is currently paid 145 times the average wage. By 2020 the differential will be 214 times.”

A new ICM poll shows:

  • 72% of the public think high pay makes Britain grossly unequal

  • 73% have no faith in government or business to tackle excessive high pay

  • asked to select from a range of options, the majority of the public (57%) wants top pay linked clearly to company performance, while half (50%) want shareholders to have a direct say on senior pay and bonus packages.

What’s next?

Ahead of its final report, due in the Autumn, the High Pay Commission is urging government and business to tackle rapidly spiralling top pay through:

  • Reforms on transparency: “A lack of publicly available information and the general level of misinformation on the issue of pay limits the current debate. Reforms that would increase transparency and allow for more meaningful disclosure, will be considered by the High Pay Commission.”

  • Greater accountability: “The current structures restraining pay at the top, namely the board and shareholders, have proved ineffective. It is therefore right for the High Pay Commission to consider how pay at the top can be made more accountable, potentially through reforms of the Remuneration Committees and the inclusion of other stakeholders.”

  • Developing a fair framework for fair pay: “The British public have a deep and ingrained sense of what is fair. When it comes to pay at the top, this is fundamentally about playing by the rules. The High Pay Commission will seek to understand further what is fair pay in a modern corporate environment and consider what reforms could engage greater fairness in relation to pay.”

The High Pay Commission will now be commissioning additional research on the issue of high pay and developing policy proposals that could seek to “mitigate or reduce this dramatic trend”. The High Pay Commission will report finally in November 2011.

A final word

“This is the clearest evidence so far that the gap between pay of the general public and the corporate elite is widening rapidly and is out of control. Set against the tough spending measures and mixed company performance, we have to ask ourselves whether we are paying more and getting less.” - Deborah Hargreaves, Chair of the High Pay Commission.

“As the polling shows there is a clear public interest in tackling top pay, and increasingly there is a clear business interest too. In part because companies depend on public support but also because the evermore complicated pay packages designed to incentivise performance for top executives - that have contributed to a ballooning in pay at the top - do not appear to have worked. The clear and necessary link between executive pay and company performance appear tenuous at best.” - Robert Talbut, Commissioner, and Chief Investment Officer of Royal London Asset Management.

Wan to know more?

Title: More For Less: What has happened to pay at the top and does it matter? High Pay Commission, May 2011.

Availability: To download the 67-page interim report in PDF format, click here.

Read submissions to the Commission at http://highpaycommission.co.uk/submit-evidence/.

The High Pay Commission is an “independent inquiry into high pay and boardroom pay across the public and private sectors in the UK”. The Commission was established by Compass with the support of the Joseph Rowntree Charitable Trust. “The Commission is independent from any political party or organisation. It is non-partisan in its approach and will draw conclusions based solely on the findings of the Commission.”

The Commission will run for one year from November 2010. To find out more visit http://highpaycommission.co.uk/.