UK asset owners have teamed up with civil society to create a free-to-access online tool designed to help investors and other stakeholders understand how companies are paying their top leaders within the wider context of their business operations.
Using indicators such as CEO pay awards, pay gaps and ratios, pay scrutiny processes such as worker consultation and recent shareholder votes on pay at company AGMs, the Fair Reward Framework (FRF) pilot includes an assessment of annual corporate pay policies and practices for 65 of the FTSE 100 companies. It is expected that assessments of the remaining FTSE 100 companies will be published in early 2025.
FRF is the result of a collaboration over the past two years between a group of investors including the Church of England Pensions Board, Brunel Pension Partnership, People’s Partnership and Scottish Widows, with the High Pay Centre – an independent think tank focused on the causes and consequences of economic inequality.
Pilot-year data 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. Company assessments are expected to 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.
Clare Richards, director of social factors at the Church of England Pensions Board, commented: “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. As a fund we will be using insights from the Fair Reward Framework to inform our 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.”
Key trends
Observing the assessments available in the FRF pilot highlighted a few key trends. Firstly, the median CEO pay was £4.1m – a ratio of 75:1 compared to median employee pay – with awards ranging from just under £1m to £17m, according to 2023 reports.
Meanwhile, 57% of analysed firms were accredited living wage employers in the UK, with 40% having disclosed their Ethnicity Pay Gap. However, only 22% provided evidence of the proportion of their workforce covered by trade union membership or a collective bargaining agreement.
Additionally, 23% of analysed companies had experienced significant shareholder dissent on a remuneration-related vote at a shareholder AGM in the past three years.
Luke Hildyard, director of the High Pay Centre, added: “Investors and other stakeholders have become increasingly concerned by calls for higher executive pay that ignore the consequences of economic inequality, and fail to situate the contribution of chief executives to business success within the context of the many other factors that drive performance. In particular, the efforts of the wider workforce and the wider economic climate.
“The Fair Reward Framework has been established to assess not just pay outcomes but whether or not the processes that deliver those outcomes reflect participatory principles that can help build stakeholder confidence that pay awards at all levels are fair and proportionate. Ultimately, we want to achieve a more democratic, inclusive business culture leading to an economy that works for everyone.”
