Wage disparity between the UK’s high earners and the rest of the working population is grossly unequal, according a report from the High Pay Commission.
Its report More for less: what has happened to pay at the top and does it matter? found that the top 0.1% of UK earners will see their pay rise from 5% to an estimated 14% of national income by 2030, a level not previously seen in the UK since the start of the 20th century. Currently top earners in this group takes as big a chunk of the national income as they did in the 1940s.
Meanwhile, the latest Institute for Commercial Management (ICM) poll showed that 72% of the public think high pay makes Britain grossly unequal while 73% have no faith in government or business to tackle excessive high pay.
The poll showed that, from a range of options, the majority of the public (57%) wants top pay linked clearly to organisation performance, while half (50%) want shareholders to have a direct say in senior pay and bonus packages.
Deborah Hargreaves, chair of the High Pay Commission, said: ”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 employer performance, we have to ask ourselves whether we are paying more and getting less.”
For more articles on executive pay and bonuses
The High Pay Commission has made a thoughtful contribution to the debate about executive pay. However, the range of factors identified shows that finding solutions will not be easy.
The Commission is surely right to focus on the complexity of executive pay as having undesirable consequences. We have long argued that simplification in this area is required. However, performance-related pay will retain an important role in delivering the Commission’s aim of fairness: if executives are not rewarded for the value they deliver, it is hard to see how the goal of fairer pay can be met.
The focus on how boards operate, on wider issues such as succession planning, and on shareholder engagement is also generally constructive. However, as highlighted in the Walker review into the banking sector, we arguably have enough governance rules already. The focus now should be on how the various parties act within the framework that exists.
Pressure on remuneration committees is clearly going to grow, but it needs to be recognised that shareholders, through the vote on the remuneration report, already have the tools at their disposal to rein in executive pay, should they choose to do so.
Finally, while we support the Commission’s desire for greater transparency, the unintended consequences of disclosure need to be considered. In our view disclosure often contributes to pay inflation rather than acting to restrain it.
We look forward to seeing the Commission’s fuller recommendations in due course.