Thought leadership

The widening discrepancy between employee wages and soaring boardroom pay is rising up the agenda of major investors and could spark calls for companies to provide more detail about their pay ratios, according to one of the largest fund management groups in the City.

Legal & General Investment Management’s annual corporate governance report predicted that pay ratios – the chief executive’s pay relative to the average employee – would be a “hot topic” in 2016.

The US regulator, the Securities and Exchange Commission, is expected to require publication of such information from next year. “This is going to put a lot more pressure on companies everywhere,” said Sacha Sadan, LGIM’s director of corporate governance, in the report.

“This is becoming a political and social issue and will creep into the governance world. Frankly we don’t know what the ratio should be, but I think it is going to be an emerging issue and more transparency will occur in this area,” he said.

The fund management arm of insurer L&G released its report into last year’s annual general meeting season just as 2016’s is getting under way. This year shareholders have already voted against pay deals at two FTSE 100 companies – BP and Smith & Nephew – while at mining company Anglo American, 40% of investors voted against pay.

The last annual wages figures for the year to April 2015 show workers’ median pay for full-time employees was £27,600, an increase of 1.6% from the previous year. Average wages have crept up since then, but the most recent annual rise of 1.8%, including bonus payments, falls well short of the UK’s rocketing executive pay.

Publishing its voting record for last year’s AGM season, LGIM said that out of the 188 resolutions it had voted against in 2015, 93 were on pay.

But Sadan said LGIM was not just focusing on pay. “Despite remuneration still being a key concern, I believe that corporate governance has evolved from just voting on pay related issues. Our report shows the issues on which we engage with companies ranges widely from climate change to cyber-security and continues to evolve,” he said.

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