Bosses In Pay Ratio Push As May Plots Reform

Britain's leading companies will be urged this week to start publishing the ratio between their chief executives' pay and that of their workforces amid plans by Theresa May to clamp down on corporate excess.

Sky News has learnt that the move will be among a series of recommendations for boardroom pay reform made by a working group comprising top City figures.

Sources said on Monday that pay ratio disclosure would be among the key measures proposed by the working group, which is chaired by Nigel Wilson, the Legal & General (LSE: LGEN.L - news) chief executive, and Boris Johnson's former pensions adviser, Edi Truell.

Details of the move will be published in the panel's final report on Tuesday, which will come three months after its interim proposals outlined a belief that boardroom pay practices are "broken" and "not fit for purpose".

The group, which also includes the J Sainsbury (Other OTC: JSAIY - news) chairman David Tyler, and Helena Morrissey, chief executive of Newton Investment Management, demanded an overhaul aimed at restoring public confidence in British business.

One insider said the move to encourage public companies to disclose pay ratios would be voluntary, in line with the rest of the working group's recommendations.

They added, however, that it was likely to be considered during a forthcoming review of the principles of the Investment Association, the trade body representing institutions with £5.5 trillion under management.

The report will not recommend an appropriate ratio between payouts for bosses and 'average' workers with the issue left to the discretion of companies' remuneration committees, according to people familiar with the report.

Mrs May said in a speech shortly before she became Prime Minister that pay multiples should be disclosed, although it is unclear whether she has a view about whether a specific ratio should be targeted.

The High Pay Centre, a research group, said last year that the average pay of FTSE-100 chief executives had reached £4.964m, or 183 times the earnings of the average full-time UK worker.

The Investment Association-backed working group has also been examining whether to endorse another of Mrs May's policies, a binding annual pay vote at Britain's biggest companies.

Sources said the issue had been discussed by the committee, and that support for it was expected to be voiced in principle on Tuesday - although it was unclear whether it would make it into the final report.

An Investment Association insider also said the report would firm up some of the interim findings on issues such as the use of long-term incentive plan schemes by leading companies.

The working group is expected to call for the simplification of pay structures to enable boards to spend more time on value-creating strategy rather than remuneration policies.

The committee's initial conclusions were that the near-universal application of a three-year long-term incentive plan (LTIP) pay model was too prescriptive and is inappropriate to many public companies.

The group has been evaluating a number of alternatives to the conventional LTIP structure, including deferring bonuses into shares which vest over a lengthy period and replace LTIPs altogether; granting of shares based on performance over the previous three years, which would guarantee the final sum to be paid out; and awarding restricted shares that would not be dependent upon long-term performance.

The manifesto to overhaul boardroom pay has acquired greater urgency since Mrs May, who vowed to govern in the interests of ordinary Britons, "not the privileged few".

In a report published this month, PricewaterhouseCoopers warned that the ability to dictate executive pay levels would be stripped from companies if they failed to show restraint.

Under reforms introduced in 2013, FTSE-350 companies must hold a binding vote on their remuneration policy every three years, but the annual remuneration vote remains non-binding.

Sir Vince Cable, the former Business Secretary, told Sky News recently that a retrospective binding annual vote could be too legally complex to enforce.

In its earlier report, the committee urged companies to move away from the "median comparators" used by directors to justify paying ever-higher packages to top executives through what it labels "remuneration creep".

The group's preliminary conclusions emerged during the most fraught environment for executive pay for years, with BP and Smith & Nephew (LSE: SN.L - news) both suffering humiliating investor rebellions at their AGMs during the spring.

Nearly 60% of BP shareholders voted against its pay report after Bob Dudley, its chief executive, was paid almost £14m for his work in a year when the oil giant lost more than £3bn.

"The FTSE-100 is trading at broadly the same levels as 18 years ago and 10% below its peak - however, executive pay over the same period has more than trebled and there is an increasing disparity between average wages and executive wages," the interim report said, with Mrs May echoing that observation this month.

"This misalignment has resulted in widespread scepticism and loss of public confidence," it said.

The Investment Association declined to comment, while none of the working group members could be reached for comment on Monday.