January 09, 2012
On of the leading corporate governance watchdogs has issued a warning to institutions in the City to curb excessive pay now if they want to avoid the government from forcing them to do so through legislation.
Pirc advises some of the biggest pension funds in Britain and has said at a time when most ordinary workers are facing pay freezes or even cuts executive pay continues to rapidly increase. Research published by Income Data Services showed that the average FTSE 100 director had seen their pay increase by 49 per cent at a time when UK growth is under 2 per cent with inflation at 4.8 per cent. The difference between growth and inflation is a clear indication that in real terms most average UK workers have seen their pay drop.
Pirc said: "In an environment when many employees are continuing to face pay freezes, or cuts in real terms, allowing executive reward to rise will become highly controversial. If asset managers have any sense, they will need to start taking a view on the scale of reward, and its relation to pay within the company, alongside performance linkage when they come to vote at company meetings."
The issue of excessive corporate pay is unlikely to go away as the government is increasingly criticizing the increase in pay to executives. Deputy Prime Minister Nick Clegg has openly praised a report by the High Pay Commission which was heavily critical of City remuneration and it appears likely that if the City fails to self-regulate then the government will introduce new laws to force a simplified pay structure.
