Executive pay could soar if code changes, body warns
FAT cat pay packets could rocket under plans to reform a code of good practice for institutional investors and how they deal with executive salaries, experts have warned.
The Financial Reporting Council, the accountancy regulator, has launched a root and branch review of the Stewardship Code, with the aim of making the UK a more attractive destination for investment.
The revised code will be published next year. The City’s Capital Markets Industry Taskforce lobby group is pushing for reforms.
In particular, it wants the requirement for institutional investors to challenge companies to justify executive pay, and for a “constructive dialogue”, allowing it to be set at globally competitive levels.
The CMIT argues that this would put British companies on a “level playing field” with their US and European competitors when it comes to hiring global talent. However, the High Pay Centre think tank warned that reforms to the code could see executive pay in the UK rocket to American levels.
In Britain, the pay ratio of the average FTSE 100 chief executive to the average UK full-time worker is 118:1. In the US, it is 340:1.
High Pay Centre spokesman Andrew Speke added that while simply increasing executive pay would not necessarily boost UK economic growth, it would guarantee that public trust in UK business would fall even further.
He said: “The emphasis on limiting reporting burdens in the review of the code is another concerning sign that the regulator will be demanding less of companies in terms of responsible business practice and giving a green light to higher pay awards for CEOs. “It is wrong to suggest the UK lacks competitiveness in CEO pay, when FTSE CEOs are the best paid in Europe. All increasing executive pay is likely to do is increase the pay packages of some of the richest people, while doing nothing to tackle the fundamental issues underlying the UK’s economic woes.”
FRC chief executive Richard Moriarty said that as the code was last updated in 2019, now is “an opportune moment for a fundamental review”.