Theresa May’s plans, to force the UK’s larger companies to reveal the pay gap between the CEO and average workers, have hit a problem – as ever it boils down to reality having a very hard bite.
First of all, Mrs May wanted to see workers sitting on the boards of larger companies – like they do in Germany – but that idea has been quietly dropped.
Never mind, there is always the option to force larger companies to publish pay ratios showing how the remuneration enjoyed by people at the top – for example the CEO, compares to the wages of the average worker.
As we all know, Goldman Sachs has a much fairer pay policy than John Lewis. It must do, the gap between the CEO and the most lowly worker is nowhere near as great as it is at John Lewis.
The snag is that the larger investment banks often subcontract the really - poorly paid jobs, such as cleaning to third parties.
The average pay at Goldman Sachs is $460,889. The CEO of the UK operation earned $12 million last year, meaning a ratio of 21 to one. Meanwhile, Sir Charlie Mayfield, chairman of John Lewis is on £1,051,000 – not even an exceptional salary at Goldman Sachs – 73 times the salary of non-management staff.
That’s the problem with reality, it has this habit of throwing up unfortunate truths.
A report from the Big Innovation Centre – an independent Think Tank, counting as its members the likes of Andrew Haldane, chief economist at the Bank of England, and Clare Chapman, remuneration chief of B&Q owner Kingfisher, is vexed.
A report from the Centre, stated: “Although well-intentioned, snapshot pay ratios by themselves have the potential to create misleading comparisons and perverse incentives.”
But the problem is not just with pay ratios.
Mrs May also wants to see shareholders having a binding vote on executive pay.
But the fear here is that if shareholders think their vote is binding they may be less willing to upset the apple cart, and their qualms about a pay award may not get heard at all. Instead the Big Innovation Centre proposes only making the vote binding if more than 25% of shareholders have voted against the pay award for two years in a row.
The report said there would be “many negative unintended consequences,” of Mrs May’s planned reforms.