‘Fat-cat’ pay has little link to company profits, says study
Union call for ‘excessive’ executive salaries to be cut and reinvested
SCOTLAND’S business executives are facing calls for their pay to be cut after a new study showed virtually no link between high salaries and company performance.
The Scottish Trades Union Congress (STUC) called for action after academics from Lancaster University concluded a “material disconnect” between salaries and a company’s “value generation”.
Helen Martin, assistant secretary with the STUC, said: “It comes as no surprise that there is very little link between high executive pay and performance and, in fact, the opposite is becoming more and more true.
“There is clear evidence that executive pay can act as a drag on the economy where a lot of a company’s resources are going to the very top rather than being reinvested or going to the workforce more generally.
“If wealth was more equally shared there would be better economic outcomes for everyone in society.”
Ms Martin said big Scottish businesses had to accept executive pay was excessive and must be curbed.
She added: “Giving shareholders more power to curb executive pay is a good first step, but we should also see workers on boards to ensure there is more scrutiny.”
The intervention followed research from Lancaster University’s management school which found that returns on investment from major companies amounted to just one per cent despite senior executives enjoying pay rises of more than 80 per cent over the past decade.
The paper concluded: “Our findings suggest a material disconnect between pay and fundamental value generation for capital providers.”
It comes after after Prime Minister Theresa May said she wanted to make tackling corporate excess a priority despite describing her Conservative Government “unashamedly pro-business”.
Among the measures under consideration are pay ratios, which would show the gap in earnings between the chief executive and an average employee.
Shareholders could be handed more powers to vote against bosses’ pay, but the Government said it would not force companies to put workers on boards.
Chief executives of FTSE 100 firms now have a median pay package of £4.3 million, which is 140 times that of the average worker, according to the High Pay Centre.
The Lancaster University study found that the median pay package for a FTSE 350 chief executive was nearly £1.9m, compared with £1m as in 2003. The highest paid sector, with a median of £2.9m, was healthcare.
The average financial sector chief executive earned less than £1.7m and follows a series of revolts that saw BP and Weir Group among companies where remuneration packages were rejected by shareholders.
Earlier this year, RBS chief executive Ross McEwan announced he would give half his annual £1 million bonus to charity.
Standard Life chief executive Keith Skeoch volunteered a £700,000 cut to his potential maximum award under the company’s long-term incentive plan.