CIPD joins High Pay Centre to advocate ethical executive pay

The professional body for HR and people development and the think-tank respond to the government’s green paper on corporate governance with a call for a “major rethink.”

Piles of pound coins
The CIPD and the High Pay Centre have created a formal partnership to advocate fairer and more ethical approaches to pay and reward in the wake of the government’s green paper on board-level employee voice and CEO pay.The partnership points out the average ratio between CEO and average pay would increase from about 129:1 to more than 400:1 if FTSE 100 CEO pay continues to increase at the same rate for the next 20 years as it has for the last two decades."Voluntary measures and modest reforms have been tried, but have not been effective,” commented Stefan Stern, director of the High Pay Centre. “If CEO pay continues to increase at the same rate as it has done, we could be seeing average CEO-to-average pay ratios of over 400:1 and certainly over 300:1, which is the level of pay ratio that is frequently seen in large US corporates."

Recommendations in response to the green paper

The coalition is therefore making a number of recommendations in its response to the consultation. It is also calling for a major re-think of corporate governance to improve CEO pay transparency and ensure boards recognise their broader responsibility towards the workforce when decisions on executive pay and business investment are made. These include that all publicly listed companies should be required to:
  • publish the ratio between the pay of their CEO and median pay in their organisation
  • have at least one employee representative on their remuneration committee
  • establish a stand-alone human capital development sub-committee, chaired by the HR director, with the same standing as all board sub-committees.
The CIPD and High Pay Centre are also asking policymakers to consider setting voluntary human capital (workforce) reporting standards "to encourage publicly listed organisations to provide better information on how they invest in, lead and manage their workforce for the long-term."

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Brexit offers opportunity to implement change?

Commenting on the CIPD’s joint response, CIPD chief executive Peter Cheese says he believes Brexit offers the right moment to build trust and sustainable businesses. “This green paper provides an opportunity to think differently about how UK plc can lead the way in post Brexit Britain. Current levels of executive pay undermine both trust and sustainability. Fiddling around the edges of the current system won’t provide the solutions we need for an innovative, productive and leading economy.“We are encouraged by and supportive of the recent announcement by the FRC [Financial Reporting Council] of the need for a wider review of corporate governance codes to better reflect modern business realities.“Let’s create a new system, where decisions about executive pay are taken within a different context, one which places the firm’s human capital development – or workforce – at the heart of Board decision making."

Reconnecting pay, performance, people and value creation

“In our view it’s very hard to justify very high pay for executives if it is unconnected to the organisation’s culture and the rewards, contribution and performance of the wider workforce,' continued Mr Cheese. "Consequently, many businesses need to fundamentally rethink how they create value for the long-term, recognising fully the contribution of all their people, not just the few at the top.“Currently, too many organisations are run with a singular focus on their financial stakeholders which undervalues the human capital – the people – that deliver business success. Our recommendations are designed to redress the balance and ensure more employers actually live-up to the routinely spouted cliché that people are their greatest asset.”Stefan Stern adds: “Twenty-five years after Sir Adrian Cadbury first reported on reforms to corporate governance it is surely time to take the bolder action that is needed. A healthier regime on top pay could have many positive consequences for UK businesses and for society generally. This could be the boost that 'Brexit Britain' needs."

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