As some of the larger businesses begin to publish pay ratios, many executives will fail to receive a pay increase this year. A new analysis by PwC shows that the pay of senior executives is actually falling for the first time in recent history.
In one fifth of the cases reported, CEO’s decided to voluntarily waive their salary increase. However, it would appear that most companies have introduced best practice remuneration as a result of shareholder activism, rather than the decision being made by the CEO of the company.
Tom Gosling, head of PwC Reward Practice says, “There’s no doubt the new voting rules introduced last year have given shareholders more power and helped to bring stability to executive pay.”
The report goes on to state that 98% of companies have introduced ‘clawback’ which is a measure to reduce or recover bonuses and long term incentive plans in certain circumstances.
The Investment Association Executive Remuneration Working Group and the BIS Committee have both recommended significant changes to pay design, but FTSE 100 companies are showing no signs of making a fundamental change. Whilst 63% of the forty FTSE 100 companies evaluated are proposing new remuneration policies, there is very limited structural change in pay arrangements with conventional long-term incentive plans remaining the usual.
Tom Gosling states, “Pay is getting harder to earn, with almost all companies introducing the ability to claw back bonuses and many lengthening the time executives have to hold on the shares they get from long term incentives. Remuneration committees are really raising the bar for executive pay.”
There is also increased attention to fairness in pay policies, as shown by four of the forty companies covered by PwC’s report, disclosing a ‘CEO to average employee’ ratio.
This month, the Business, Energy and Industrial Strategy Committee said businesses needed to improve corporate governance and tackle excessive executive pay to restore public trust. It highlighted the damage done at Sports Direct and BHS and the extreme executive salaries paid in recent years despite no wage increase for many workers. It continued by suggesting that employees should sit on remuneration committees.
Tom Gosling - of PwC - added, “Although we don’t think pay ratios are the answer, it’s good to see companies taking steps to address the fairness question. This is an area where business will need to do more to rebuild trust with the public and we’re likely to see proposals from the government to encourage this in due course.”
