Firms move to curb exec pay

Ten percent of the UK’s FTSE 100 firms are deliberating on scrapping long-term incentive plans (LTIPs) to curb astronomical executive pay in response to shareholder revolts on the issue, it has been reported.

According to the Financial Times, companies are considering a shift away from performance related LTIP payouts to share-based bonuses, in order shrink the wage gap between CEOs and ordinary workers.

Unite said self-policing was not enough to tackle the increasingly obscene pay disparity between fat cat bosses and normal workers.

The average salary of a CEO is now £4.3m, compared to an average of £28,000 a year for ordinary workers. Last year, Britain’s best paid chief executive, Sir Martin Sorrell, pocketed £63m as part of an LTIP agreement.

Investors told the FT that financial service and retail companies are among those deciding whether to ditch LTIPs, which have made significant contributions to sky-rocketing executive pay during the past decade.

Royal Bank of Scotland, which had to be bailed out after the 2008 financial crisis, is also looking at getting rid of LTIPs – a move that would cut the pay of its top executives by nearly half.

Investor groups, including Schroders, Aberdeen, M&G and Hermes, are leading the reform effort.

“LTIPs are not the whole problem. But they are a significant part of it,” said M&G head of corporate finance and stewardship, Rupert Krefting.

But despite attempts at reform, pay experts told the FT that many companies will resist attempts at change.

News of the reforms coincided with the closure on consultations this week for a government green paper on reforming executive pay. The paper recommends companies publish pay ratios that compare CEO wages with those of average employees.

Although Theresa May promised to tackle the growing wealth divide when she took office last year, she promptly u-turned on progressive plans to install worker representatives on company boards.

Unite assistant general secretary Steve Turner said that income inequality can only be solved by an equitable rebalancing of economic power.

“Growing inequality over the past 30 years has its parallel in a weakened trade union movement and the collapse of collective bargaining. A return to a strong, well-organised and effective trade union movement coupled with sectoral collective bargaining is the answer,” Turner said.

“It is a failure to introduce proper, effective and enforceable structures of corporate governance — structures that give workers a powerful collective voice in the companies they work for — that is at the heart of runaway corporatism both here at home and across much of the globe.”

He added, “The government must act to address both if we are to tackle gross inequalities and build a fairer, more just Britain.”