From the blog: A few weeks ago, the High Pay Centre released its annual report on executive pay at FTSE 100 companies. Unsurprisingly the report highlighted a large increase in chief executive officer pay from 2016 to 2017 – rising by 11 per cent.
Unfortunately and even less surprisingly, workers’ pay in those companies didn’t even match inflation, rising by only 1.7 per cent.
Increasing pay disparity between top executives and those lower down an organisation is an important issue for Nest. Nearly half of our members are below the age of 35 and more than half have annual earnings of less than £20,000.
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Unfortunately and even less surprisingly, workers’ pay in those companies didn’t even match inflation, rising by only 1.7 per cent.
Increasing pay disparity between top executives and those lower down an organisation is an important issue for Nest. Nearly half of our members are below the age of 35 and more than half have annual earnings of less than £20,000.
We believe that our investments in companies will prosper if the companies are managed in alignment with the principles of sustainable capitalism
Burgeoning boardroom pay is far from being in their best interests as workers or investors. It brings disillusionment and it doesn’t lead to improved corporate performance. In fact, evidence suggests the opposite.
Earlier this year our chief investment officer Mark Fawcett made it publicly clear that CEOs should not ‘get rich in a year’. True, CEOs play a significant role in the long-term success of any organisation and should be rewarded appropriately for their service over many years.
But success is the result of the hard work by all employees, so why isn’t reward for that success distributed more fairly?
Consider worker pay too
New corporate governance guidance from the Financial Reporting Council, which asks remuneration committees of UK companies to consider wider workforce pay when setting the executive pay policies, is a positive step.
This is something that Nest has pushed for in its voting policy for many years and we’re encouraging our fund managers to do the same.
We want them to take a firmer stance on executive pay, particularly in companies with poor workforce pay and practices. We also want the industry to look harder at long-term incentive plans and ask whether they incentivise the right types of behaviour that are in the long-term interests of the company and investors.
Shareholder disquiet and political attention is gaining momentum, and we hope a harder stance from all will bring about much-needed change in the way UK businesses and the investment industry view pay and reward.
Pressure building on pay
Inequality hurts economic growth in the long run and has an adverse impact on our members’ job prospects, standards of living and ultimately their financial outcomes in retirement.
This is why we have been proactive in the support of good workforce practices and pay. We are a founding signatory of the Workforce Disclosure Initiative and have conducted research projects into understanding workforce and human capital, and the conduct and culture in UK banks.
This work has helped shape our voting policy and engagement with companies to help them refocus their efforts on their most valuable asset – its people.
We invest on behalf of our members who are workers in companies. We believe that our investments in companies will prosper if the companies are managed in alignment with the principles of sustainable capitalism, which includes paying the whole of their workforce fairly and responsibly.
Diandra Soobiah is head of responsible investment at Nest.
