Governance Watch - Issue 48

by Dina Medland in London

Executive Pay: Context is Critical 

The socio-economic climate of Brexit has made boardroom pay - already a topic regularly simmered and stirred in the United Kingdom across a broad range of stakeholders – into rich ground for politicians.

Theresa May vowed, even before becoming Prime Minister, to focus on corporate governance, tackle the excesses of corporate pay and put workers into boardrooms. The word “fairness” appeared everywhere in media coverage of that Conservative Party conference.  This week we learn, via a Guardian exclusive, that a report commissioned by the Labour Party calls for an annual binding vote on executive packages to include all stakeholders – including employees and consumers. 

The measures proposed include publicising executive remuneration contracts, making them cash only with no share options, and publishing pay differentials between executives and employees analysed by gender and ethnicity. It was commissioned from a team led by Prem Sikka, professor of accountancy and finance at Sheffield University. 

It comes soon after the revelations that the highest-paid chief executive in Britain is a woman. Denise Coates, founder of Bet365 the gambling firm and is also the highest-paid female CEO in the world. The £265 million she paid herself in 2017 has generated an interesting range of media coverage in the UK from the BBC, the Financial Times and The Guardian

The BBC report mentions how the industry “is facing mounting criticism for not doing enough to deal with problem gambling and addiction.” The FT talks about how Bet365 has “outpaced the sector” and The Guardian story (seemingly the most read) has “obscene” in the headline on the pay-out. In the American CNN coverage, the headline quotes Vince Cable, leader of the Liberal Democrats, who called the pay-out “irresponsible and excessive.” 

Corporate governance done well should position business to perform better for itself, and for the society it serves. But voluntary codes don’t appear to be shaping corporate behaviour on a number of fronts. 

Earlier this week the International Labour Organization (ILO) published a report stating that global wage growth is the lowest since 2008, with women still earning 20% less than men. Wage growth in Britain has been the weakest of nine advanced countries in the decade since the financial crisis. 

The reports around executive pay are coming in thick and fast from all directions. A report just out by data analytics company CGLytics looks at misalignment between pay and performance, finding that some 30% of FTSE 100 companies have “significant misalignment.” 

Its annual FTSE 100 proxy review says average total shareholder return for the FTSE 100 demonstrated a higher volatility, with a decrease to 8% in 2017 – while the average total realised CEO pay increased by 5.5% to £4.9 million. The number of resolutions opposing individual director re-elections has doubled, from 38 to 2017 to 80 in 2018, according to the report. 

Pearl Meyer, the executive compensation consultancy, has developed an index for CEO pay – and you can hear their thoughts on changing the conversation on remuneration from the cost of executives, to their value, in this video. 

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