CEO Pay Ratio under the Spotlight
Organisations continue to make cuts and reduce staff numbers whilst CEO pay increases. Is it time for this to change?
CEO pay has skyrocketed with some outsizing their workers around 1,935 times their average worker as reported by CIPD in their report on executive pay.
Due to the significant size of executive pay in recent years, this has attracted the attention of the media and subsequently, the enactment of the Companies (Miscellaneous Reporting) Regulations 2018 (the Regulations) which requires companies to report information on the ratios between CEO and staff pay for financial years beginning on or after 1 January 2019.
The Regulations currently apply to quoted companies with more than 250 employees and highlight the wealth inequalities between executives and other workers. It also indicates the Government’s effort to increase transparency and help individuals and business partners understand their remuneration policies and how they work.
As we approach the end of 2021 many companies will be planning or have already decided their own remuneration strategies and budgets for the upcoming year. Whilst cuts are made elsewhere CEO pay increases will need to be explained to investors and shareholders including how this impacts the wider workforce.
There will be many factors that influence this decision including the impact on staff retention as employees look to work in other organisations that place importance on transparency and offers better benefits. Each sector will differ in this respect and reporting may not be as consistent as it has been in previous years but will no doubt draw in further scrutiny as the impact of the pandemic on the economy and job market becomes more apparent.
In March 2019 BEIS published a report on executive pay which recommended that CEO pay ratio reporting should:
- be extended to all organisations with over 250 employees; and
- include a requirement to publish the ratio between CEO pay and the lowest pay band, as well as the bottom quartile.
Although not all companies will have to comply with the Regulations, it does send the message that the Government is committed to increasing transparency as we have seen with the gender pay gap reporting and potentially ethnicity pay gap reporting.
The impact of the Regulations will need to be closely monitored before they are extended to all organisations.