UK asset owners have partnered with civil society to create a new free-to-access online tool to help investors, as well as other stakeholders, understand how leading companies are paying their top leaders within the wider context of their business operations.
A group of investors, including the Church of England Pensions Board, Brunel Pension Partnership, People’s Partnership and Scottish Widows, has joined forces with the High Pay Centre – an independent think tank focused on the causes and consequences of economic inequality – to form Fair Reward Framework (FRF) which aims to be a response to the “long-standing debates around corporate pay”.
The tool designed by the group is intended to inform investors’ stewardship activities that will take place throughout the financial year, including how they choose to engage with companies and vote at annual general meetings (AGMs).
Pension funds can use the assessments to escalate their interests via their fund managers. As well as its direct uses for investors, it also has the potential to support the work of civil society groups, trade unions or the media by compiling comparable accessible data on pay practices at leading companies, as well as providing insights for remuneration committees, people and human resources professionals within companies.
The FRF explained that companies’ annual corporate pay policies and practices are assessed through a 30-point framework comprising indicators including chief executive officer pay awards, pay gaps and ratios, pay scrutiny processes such as worker consultation, the extent of trade union coverage and the results of recent shareholder votes on pay at company AGMs.
The Framework added that company assessments will be updated on an ongoing basis following annual reporting cycles, with companies having the opportunity to comment on their draft assessment ahead of its publication.
Pilot
At launch of the pilot, assessments are available for 65 of the FTSE100 companies – with the full FTSE100 to have been published by early 2025.
The data for the pilot has been compiled by the FRF secretariat in a process that is coordinated by the High Pay Centre with input from data partner Minerva Analytics.
Some of the trends that have been observed among the pilot data include:
- the median CEO pay was £4.1m with awards ranging from just under £1m to £17m (2023 reports);
- the median CEO to median employee pay ratio across the sample was 75:1, while the highest was 431:1 and the lowest 13:1 (2023 reports);
- 57% of analysed firms are accredited living wage employers in the UK;
- 40% of analysed firms have disclosed their ethnicity pay gap;
- only 22% of analysed companies provided evidence of the proportion of their workforce covered by trade union membership or a collective bargaining agreement;
- only 6% disclosed details of any meaningful consultation with their workforce during the executive pay setting process;
- 34% of remuneration committees at analysed firms had exercised discretion within the past two years in adjusting pay awards, with the majority of these being downwards;
- 23% of analysed companies have experienced significant shareholder dissent on a remuneration-related vote at a shareholder AGM in the past three years.
Clare Richards, director of social factors at the Church of England Pensions Board, said: “We need to reset the debate on corporate pay to be based upon a broader understanding of a company’s approach across the whole firm.”
She added that the fund will be using insights from the framework to inform its voting decisions at company AGMs as well as engagement with company remuneration committees.
“Fairness and proportionality, as well as monitoring factors such as consultation with the workforce and due consideration to shareholder dissent, are at the heart of this assessment framework. Future feedback from FRF users and assessed companies will continue to inform the tool’s further development,” Richards said.
Vaishnavi Ravishankar, head of stewardship at Brunel Pension Partnership, added that amid all the debate regarding the importance of remuneration packages to attract, motivate and retain exceptional executives, the Fair Reward Framework anchors analysis of top pay packages within a holistic view of how a company’s success is shared across a range of stakeholders.
“This pilot project has the potential to really help inform discussions on high and low pay within the companies in which we invest”
Shipra Gupta, responsible investment lead at Scottish Widows
He said: “Accomplished senior executives are undoubtedly central to setting and delivering on an impactful business strategy, but just as important is a sensitivity to how other actors within the corporate ecosystem are rewarded for their inputs to the company’s wealth creation.”
Shipra Gupta, responsible investment lead at Scottish Widows, noted: “The asset owners who have been advising the development of this tool have committed significant resource to the Fair Reward Framework over the past year and more, taking into account the responses to the consultation conducted last year and company feedback on their draft assessments.
“We believe this pilot project has the potential to really help inform discussions on high and low pay within the companies in which we invest, and which impact on the day-to-day lives of our beneficiaries and clients through their own employment arrangements.”
Leanne Clements, head of responsible investment at People’s Partnership added that the framework enables investors and a variety of stakeholders to cut through the mass of corporate reports, which embeds necessary efficiencies into stewardship decision-making.
She believes this will help drive more informed discussions about fair pay, and allow the investor the flexibility to pick and choose which indicators are most important to them.
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