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British blue chips snub investor calls to reveal CEO pay ratios
[LONDON] Some of Britain's biggest companies are bucking calls to reveal more data about executive pay, risking a fresh rift with major investors who are urging the government to combat ballooning wage inequality.
Four of the 16 FTSE 100 companies that responded to a Bloomberg survey - GlaxoSmithKline, AstraZeneca, Aviva and Anglo American - said they won't publish a breakdown of how much more their CEOs earn than the average worker, a measure backed by the Investment Association, whose members hold about a third of the stock represented in the benchmark index.
While advocates say forcing companies to report pay ratios would help restore trust in big business at a time of record wealth divisions and rising anti-globalisation sentiment, critics argue the metric is a misleading indicator for multinationals with workers all over the world.
A FTSE 100 boss earned 128 times more than the average employee in 2015, up from 47 in 1998, as CEO pay jumped from about £1 million (S$1.77 million) a year to £4.3 million, data compiled by the government show.
Prime Minister Theresa May decried the widening pay gap as "unhealthy" and "irrational" before submitting a so-called green paper on corporate governance reform in November. That document gives interested parties inside and outside the government until Feb 17 to offer recommendations to lawmakers who are charged with drafting new measures.
While the pay-ratio debate is just getting started in the UK, the issue has been hotly contested in the US since the rule was included in the Dodd-Frank Act that former President Barack Obama signed in 2010. The US measure came into effect this year, but implementation was delayed after President Donald Trump signed an executive order mandating a sweeping review of Dodd-Frank.
Leading Republicans in Congress and business lobbyists have assailed the regulation, arguing that it requires companies to disclose information that isn't necessary for making investment decisions. Heads of companies in the S&P 500 enjoy pay ratios and total compensation that are more than double their counterparts in the FTSE 100, according to data compiled by the AFL-CIO, the largest American federation of trade unions.
Tom Gosling, a partner at PricewaterhouseCoopers LLP in London who advises FTSE 100 companies, said he submitted arguments against imposing the rule in part because it doesn't capture how the role of the CEO has grown over time. He said wage disparity is a problem that needs to be addressed, but better ways to do it include requiring companies to disclose data showing how CEO compensation moves relative to employee wages over time.
"Pay ratios have the potential to be at best misleading and at worst positively damaging," Mr Gosling said.
The government admitted as much in the green paper, noting for example that retailers, which tend to offer low pay, would have a higher ratio than investment banks, where incomes are generally much higher.
Most of the FTSE 100 companies polled, including Tesco Plc, Sky Plc, Next Plc and Dixons Carphone Plc, said they hadn't decided whether to include pay ratios in their annual report yet. Legal & General Group Plc and Land Securities Group Pl said they definitely will. None of the companies surveyed would comment beyond stating their reporting plans.
All four companies that said they won't reveal ratios - GlaxoSmithKline Plc, AstraZeneca Plc, Aviva Plc and Anglo American Plc - came under fire from shareholders last year over their compensation policies. Both pharmaceutical groups, Glaxo and Astra, and the insurance giant Aviva, were criticised by shareholder advisory firm Pensions and Investment Research Consultants for "excessive" incentives that boosted CEO pay.
Pascal Soriot's earnings at Astra rose to £8.4 million, while Andrew Witty's at Glaxo reached £6.7 million, or 64 and 56 times the average worker, respectively. Anglo American raised Mark Cutifani's package to 3.4 million pounds over the objection of 42 per cent of shareholders. Aviva's Mark Wilson earned £5.7 million.
The Investment Association and other backers of a ratio requirement like the High Pay Centre, a nonpartisan research group, say politicians and investors will have an incentive to curb excessive compensation once companies are forced to disclose such information to the general public.
"I'm a believer in what's called nudging - small changes that can have a behavioral impact," said Matthew Taylor, a former policy adviser to Tony Blair who's currently leading a government review of employment practices.
"It's clear that companies think harder about how they present themselves when they have to publish information."