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Pay ratios will bring greater transparency and accountability, says CIPD

Ben Willmott, Head of Public Policy for the CIPD, the professional body for HR and people development, comments on the new Corporate Governance Reforms:

Company Profile

CIPD

“The Government’s Corporate Governance Reforms are a welcome move towards building greater trust and fairness in business. While today’s reforms may not go as far originally suggested a year ago, they nonetheless improve transparency around top pay and boost employee voice at board level. 

“The CIPD has been calling for the publication of pay ratio between CEOs and their workforce since 2015 so we welcome the Government’s plans to introduce new laws to address this. The latest CIPD/High Pay Centre research found that for every pound their average worker is paid, a FTSE 100 CEO receives £129. Our research has also shown that high levels of CEO pay can demotivate the wider workforce, which can have a wider impact on engagement and productivity, so it’s right that this is addressed through greater transparency and accountability.

“We also welcome moves to publicly name companies that encounter significant shareholder opposition to executive pay packages. Executive pay must be clearly linked to business performance and shareholders have a key role to play in holding executives to account on this.

“It is particularly encouraging to see that the Government’s reform package will require all large companies’ directors to explain how they are taking not just shareholder but also employee interests into account. Good corporate governance must start with the workforce, who play a fundamental role in creating a business’s success, as well as shareholders and the wider community. 

“The requirement to ensure that employees’ interests are better represented at board level of listed companies is a positive step. Evidence from numerous corporate scandals shows that there was knowledge of issues that were undermining corporate governance but too often people felt they could not, or were afraid of, speaking out. There is no magic bullet to creating meaningful employee voice but the options put forward by government are broadly positive and should encourage greater awareness and discussion of workforce matters at board level.”