What’s the Story?

Recently, companies received a letter from the Good Work Coalition, which is a group of 14 investors with $1.46 Trillion assets under management, sponsored by the responsible investment organisation ShareAction.

The letter set out "[...] expectations of companies to protect their lowest paid workers during the cost-of-living crisis [...]”, and added that "[...] companies should ensure that the balance of executive remuneration to that of the wider workforce is equitable and supports workers to manage inflationary pressures. As far as possible, lowest paid workers should receive pay rises that meet the current rate of inflation, as measured by CPI."

Investors are thus increasingly wanting to see fair pay in action. With the lower-paid employees protected, the next focus is the balance between directors and the rest which should become more fully and fairly considered. The full letter can be read here

New UK Executive Compensation Study

A new UK report shows median CEO pay rose 12% in 2022, reflecting high bonuses (at 76% of maximum down from the 2021 record of 85%) and share price boosted LTIPs (Long Term Incentive Plans).

The latest institutional investors view is that directors' fixed pay should rise less than the workforce. Some 90% of companies complied, with an average CEO rise of 3.5%, well below the average 6% given to employees.

Check out the press top pay story here.

Why Does it Matter?

As we know, the 2022 cost of living crisis endures in 2023, hitting millions of employees.

Inflation in March remained high at 10.1% CPI, and with food inflation at 19%, the lower-paid are feeling this crisis the most.

Many companies made a one-off payment in 2022, including a majority of the FTSE 100, where the burden of an inflation matching pay-rise should have been easier to deliver. And now there is a good chance that a second one-off payment might be seen in 2023 in many cases.

Employees are suffering with money worries, impacting their work effectiveness and importantly, maybe their long-term health. Employers therefore have both a commercial and a moral obligation to address the issue.

Newspoint View

Employees currently get a 4% wage cut from an average 6% pay rise. Even worse, this masks an even bigger cut still for the 1 in 2 employees whose pay rise is less than average.

A CEO 3.5% pay rise shows compliance, and granted, some sensitivity, but if applied to a £750,000 salary, it yields an extra £26,250. A 6% rise for employees on £33,000 means £1,980, - thirteen times less. 

Yet, executive compensation must remain “market competitive”, so a levelling up concept may well apply. Just as you don't get the poor to become rich by making the rich become poor, paying below market at the top will not boost the pay at the bottom. The effect being that we end up with two problems rather than one, an unjustly paid bottom team and a below market top team.

Companies need to separate two things. First, paying adequately at the bottom, which is a moral justice concern. And second, paying the whole team both competitively and with internal fairness, which is a motivational driver.

Bonus and LTIPs make up much of top pay. Keep in mind that Employee Gain Share Plans and Employee Share Plans can play a similar role for the rest of the team.

Now seems a good time to revisit these concepts.

Executive Compensation and Incentive Design

Reward and Share Plans 

Remuneration Advisory and Support

ESG and Sustainability

Please feel free to email or call:

Damian Carnell - [email protected]  +44 (0) 7989 337118

VA Bec Bostock - [email protected]

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