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Employee reps needed to tackle top pay excess

Responding to Vince Cable’s announcement on executive pay, the think tank IPPR argues that the government should introduce reforms that help employees have a greater say in how pay and reward is organised within their company. IPPR argues that including independent experts on remuneration committees is unlikely to be effective. But IPPR welcomes greater transparency through new distribution statements.

Kayte Lawton, IPPR Senior Research Fellow, said:

“Whilst the Government’s proposals to tackle excessive top pay are welcome they are unlikely to be successful because they rely on shareholders to hold executives to account. Shareholding in the UK has become increasingly fragmented and short-term, making it hard for shareholders to exercise control over company directors. Over 40 per cent of UK shares are held outside the country, and shares are held for an average of just 8 months.

“Curbing top pay would be easier if employees were given a greater role. Employees have a good sense of how companies work on a day-to-day basis and are often more committed to companies than shareholders.  It is disappointing that the Government has decided not to require companies to include employee representatives on remuneration committees. This would have ensured that pay levels across the organisation are taken into account when setting directors’ pay, a requirement of the corporate governance code.”

IPPR research to be published next month will show that ‘shareholder activism’ by itself is not enough to tackle unfair pay in UK companies:

  • Greater shareholder scrutiny of top pay deals relies on institutional investors like pension funds and insurance companies. However, they only own just over a quarter of UK shares. Over 40 per cent of shares in UK listed companies are owned by organisations and individuals outside the UK.
  • Shareholders, even UK institutional investors, are increasingly holding shares over shorter time periods, making it difficult for them to have oversight of the long-term interests of a company.
  • Most shareholdings are managed by fund managers, who typically manage a large number of shares for a number of different investors, making it hard for them to keep a close eye on corporate governance in any one company.
  • Shareholders rarely reject directors’ remuneration reports – only 5.6 per cent of remuneration reports in FTSE All-Share Index companies were voted against by shareholders in 2010. 


Richard Darlington: 07525 481 602 /

Tim Finch: 07595 920 899 /


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