High pay red tape likely to cause a muddle, warns new research

Hayley Kirton
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Theresa May has made more than a few suggestions about what to do about bumper pay packets (Source: Getty)

Politicians who wade into regulate pay could wind up doing more harm than good, a report out today warns.

The Institute of Economic Affairs' research found previous attempts to rule against high pay had backfired and governments would be better off focusing on cleaning up complex tax systems and closing up loopholes.

In particular, the report noted in Germany, which has a system to give stakeholders a voice on the board via a two-tier set up, executive pay has continued to drift upwards anyway, while other evidence suggested binding votes on pay made shareholders shy away from casting their ballot, rather than encouraging them to speak up.

The Institute of Economic Affairs also warned large companies may be reluctant to bring their business to the UK if pay regulation became too heavy-handed.

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The report might not be the most leisurely summer read for recently appointed Prime Minister Theresa May, who has advocated measures such as binding shareholder votes and employee representation on boards to help get a grip on boardroom pay packets.

The researchers also took issue with minimum wage levels, such as the recently introduced national living wage, and regulations designed to narrow the gender pay gap.

The Institute of Economic Affairs argued government would be better off reconsidering policies which raised costs of living instead of wage floors and added its research had found there was little to show differences in pay linked to gender stemmed from discrimination.

Read more: UK bosses' pay packets soar but pay ratio narrows

"Sadly, rather than accepting that employers and employees come to agreements about pay according to a specific job, pay policy is being driven by popular misconceptions, such as that pay levels are determined by discrimination, or that pay should compensate workers for their living costs," said Ryan Bourne, head of public policy at the Institute of Economic Affairs and one of the report's authors. "Where political views on pay are concerned, we have seen a regression to the meme."

However, Stefan Stern, director of the High Pay Centre, was more doubtful that chief executive pay should continue to be dished out unrestrained.

"While leadership is important, it is fanciful to suggest that a single human being called a chief executive can – or should – have such a disproportionate impact on the results of a vast international business," Stern remarked.

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