UK trade unions call on investors to tackle boardroom pay

Trade unions representing 3m workers and high pay campaigners have urged 60 of the biggest investors in UK companies to vote against those with egregiously wide pay gaps between management and workers at annual meetings.

The High Pay Centre think-tank and unions, including Unite, Unison, and Prospect have written a joint letter to investors to highlight the importance of pay ratio disclosures that have been mandatory in annual reports since 2020.

The push for greater scrutiny on the pay gap is designed to heap further pressure on businesses, which have failed to address the discrepancy, during an AGM season that has already seen a number of high profile investor revolts over remuneration.

Executive pay has been the biggest flash point at shareholder meetings so far this year, with investors protesting against wages at companies such as AstraZeneca, Rio Tinto, Indivior and Foxtons in recent weeks.

In guidance sent alongside the letter, the High Pay Centre recommends that investors vote against remuneration reports and the re-election of board members at companies with unjustifiably wide pay gaps between directors and workers.

“We have seen some steps forward in the conversation about capitalism in recent years, whether it is on the environment or equality, and pay ratios is one of the next big issues,” said Mike Clancy, general secretary of Prospect.

Research from the High Pay Centre shows that the average FTSE 100 chief executive was paid 119 times more than the average worker in the UK last year — a median pay reward of £3.6m compared with the earnings of the median UK full-time worker at £30,353.

The letter says that low pay should be considered a material issue for companies and their investors because of the negative effect on employee engagement, staff turnover and productivity.

Pay ratio disclosures show the relative gap between chief executives and their UK employees. In the letter, the unions said that “CEO to worker gaps have contributed to the UK experiencing among the highest levels of income inequality of any high-income country” and were a primary cause of declining public trust in business. 

Support at AGMs for pay policies has fallen this year to 91.4 per cent on average across UK public companies, down from 94.8 per cent last year, while support for the non-binding pay policy has also decreased, according to Proxy Insight, the data provider.

Many big investors, such as Fidelity International and Legal & General Investment Management, have urged companies to ensure executive pay was reflective of the experience of wider stakeholders, particularly employees.

Karoline Herms, global investment stewardship manager at LGIM, said investors wanted “restraint and alignment with all stakeholders” when it came to executive pay.

Under LGIM’s executive remuneration policy, it expects all UK companies to publish pay ratios. “We believe calculating this ratio is an important step in addressing fairness in pay at different levels of the organisation,” the UK’s largest asset manager said in a document last year. 

Luke Hildyard, High Pay Centre director, said: “To get the economy moving again, and to build a fair society that works for everyone, investors need to make sure that all workers are fairly paid and fairly treated at the companies in which they invest.”