Wednesday 21 August 2019 4:10 am

DEBATE: The average CEO-worker pay ratio is down – so are shareholders winning the debate against excessive pay?

The average CEO-worker pay ratio is down – so are shareholders winning the debate against excessive pay?

Andrew Ninian, director of stewardship and corporate governance at The Investment Association, says YES.

When you negotiate, whether buying a house or closing a business deal, you don’t wait until the final offer to start discussing price. It is agreed throughout.

Using final AGM votes on pay as a measure of shareholder influence is therefore misleading, as shareholders engage with directors who set pay before it goes to a vote. Engagement ensures that the policy reflects shareholder wishes and should lead to pay which aligns with performance. Where it does not, directors who set pay often face shareholder revolts.

And the evidence shows that shareholders are driving change. This year, thanks to a public campaign by shareholders on executive pensions, more than 50 of the UK’s top companies have pledged to cut their executives’ pension contributions.

The job is not done, and shareholders will continue to hold companies to account for their pay, ensuring that it is appropriate and linked to performance. But the dial is shifting, and shareholders are clearly playing their part.

Ashley Walsh, head of policy and research at The High Pay Centre, says NO.

Shareholders aren’t just losing the debate against high pay. They’re not even bothering to fight it. Five years after the coalition government gave shareholders a veto over top pay, they’ve meekly waved through every single FTSE 100 pay policy.

One swallow does not a summer make. Top pay fluctuates with stock market trends – it is nothing to do with executive performance.

Meanwhile, in the biggest wage squeeze since the Napoleonic Wars, the average worker earns in one year what the typical FTSE 100 chief exec trousers in two days. Companies lavishing millions on top executives and senior managers leaves peanuts for the rest

Those who accept such grotesque inequality exaggerate the influence of individuals in large, long-established firms. If such influence exists at all, it reflects poor succession planning.

Chief executives are not worth 117 times the average worker. They’re bunged for being in the right place at the right time, while their staff slog away, driving profits, innovation and productivity.

Main image credit: Getty

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.