Jump to content
  • Luuk Jacobs
    Luuk Jacobs

    The next Pay Gap is coming – here’s what it means

    With the dust on the Gender Pay Gap Reporting just settling down, and clearly a lot of work to be done as a result, the UK is bracing itself for the next legislation around Pay Gaps. This time around it’s the turn of the CEO. UK listed companies must publish and justify the Pay Gap between Chief Executives and their staff from 2020 and explain how future share price rises will affect executive pay.

     

    In 2018, corporate America already made public a data point it would probably rather keep under wraps: how much CEOs make in comparison to their (global) employees.

     

    Pay Ratio Reporting will force UK listed companies with over 250 employees to reveal and “justify” the difference between how much top executives are paid compared with the average pay of their UK workforce (and in that it is different from the US where companies have to disclose their “Pay Ratios,” or the CEO’s compensation divided by the (global) median employee’s).

    Companies will also have to publish a narrative explaining changes to the pay ratio from year to year and to set the ratio into context of pay and conditions across the workforce.

     

    Subject to Parliamentary approval, this will come into effect from 1 January 2019, and companies will have to start reporting their Pay Ratios in 2020.

     

    What is the objective?

    One may ask what the exact objective of this law is. Has it been created as a tool to name and shame individuals and companies, or is it about reaching ratio that is considered to be reasonable? There are other questions as well.

    What will the justification of the ratio really mean, and how and who is to challenge it; is this the employee, the shareholder or even the government?

     

    What factors are to be taken into account to define what reasonable is?

    Of course, with all change there is risk. One could easily argue executive roles come with intrinsic high risk themselves; that of succeeding at the task. Being offered a remuneration package not reflecting this due to keeping in line with a certain (median) executive versus staff remuneration ratio, would potentially drive the best candidates away.

     

    Is it a rush to the average?

    Some data shows it would take the average UK full-time worker on a salary of £28,000 (median full-time earnings) 160 years to earn what an average FTSE 100 CEO is paid (£4.5 million) in just one year (CIPD estimates). The Equality Trust runs a very clever Pay Ratio tracker if you don’t believe me. Does this mean a ratio of 160 is the benchmark against which “reasonable” is measured? Is there room to be specific to company circumstances even if the public eye might say ‘but the average is 160’? Not currently as there seems to be no definition and no rationale either.

     

    James Jarvis, Corporate Governance Analyst at the Institute of Directors, said: “Ratios are a pretty blunt tool, which will generate plenty of heat but not necessarily much light on the issue of executive pay.”

     

    The role of the AGM

    In today’s world the Executive remuneration proposals are (or at least should already) be scrutinised every year through the AGM. Recent high profile cases where shareholders refused to approve the executive remuneration proposal (at the AGM of Persimmonin April 2018) or there was at least a rebellion against pay reports (AGM SHELLin May 2018) are a case in point.

     

    The role of the Board

    Following the recent Carillion scandal, ‘the board’ is in the spotlight which has led the IoD to call for tightening the rules around executive roles, responsibilities, and bonuses. This debate will rage on with strong arguments for and against.

     

    We are left without answers so far. With ‘the board’ already having the responsibility to review and challenge the right executive pay, is bringing the Pay Ratio a good move? It may appear in the public domain but is it really indicating the Board is not doing its job properly if there is no accepted mean or average?

     

    On the upside, this legislation may help bring about a better dialogue between boards and employees about the goals and aspirations of their business, and how pay is determined to achieve this shared vision.

    • Like 1


    Share this  

    Member Feedback

    Recommended Comments

    There are no comments to display.



    Create an account or sign in to comment

    You need to be a member in order to leave a comment

    Create an account

    Sign up for a new account in our community. It's easy!

    Register a new account

    Sign in

    Already have an account? Sign in here.

    Sign In Now

  • Our picks

    • Here at AlgoMe we know that one of the best ways to grow our community is through the recommendations of our existing members.
       
      That's why we're offering members the opportunity to win an iPad by simply inviting your friends and colleagues to join the community*.
       
      To be eligible, use the inbuilt invite function, which you can find in the user-bar at the top of the site or app when signed in (), to send personalised invitation emails. When your invitee signs up using the unique link or invitation code they receive, they will appear under your list of successful invites and you will be in with a chance to win.
       
      Each successful invite gives you an additional chance to win.
       
      Please invite people who will be valuable members of the community and have an interest in or experience of Investment Management, Asset Management, FinTech or associated industries.
       
      If you are not already a member, you can register here for free and join in the competition.
       
      Good luck!


       
      iPad model may differ from the image shown
      *Entry is subject to the agreement of the full Terms & Conditions
        • Like
      • 0 replies
    • The Investment Association recently gave the industry a boost when it announced the launch of Velocity, its FinTech accelerator.  Designed to identify, develop and accelerate best in class firms with innovative solutions, Velocity will champion and facilitate the wider adoption of technology across the industry.
       
      And AlgoMe will be involved in this too, which is why I’m excited to announce we are now a member organisation of the Investment Association as an official FinTech member and have been named a "company to watch" by Velocity.
       
      Challenging Times
      The Investment Management industry faces major challenges and opportunities from forces such as digital technology, pressure on fees and increased regulation, while at the same time there are widespread changes in the workforce and their expectations.
       
      To date, Investment Management has both been fairly insulated from the challenges posed by agile FinTech competitors, but also distant from the opportunities offered by the new technologies and ways of thinking that such companies bring.
       
      Bringing FinTech closer
      Velocity is a fantastic step towards accelerating the adoption of FinTech. It has received support and endorsements from both inside and outside the industry, including from the Chancellor of the Exchequer, Phillip Hammond, who was enthusiastic about the initiative at a recent City event.
       
      To drive change and innovation, the industry needs to connect across different disciplines and areas of expertise, driving new ways of thinking and fostering cultural change.
       
      Without the benefit of emerging FinTechs and their external expertise, it will be hard for incumbents to harness the benefits of emerging technologies such as Straight Through deal Processing (STP), Distributed Ledger Technology (DLT), and Artificial Intelligence (AI) in areas such as risk and compliance, securities trading and investment decision making.
       
      Our Mission
      AlgoMe's mission is to connect the Investment Management industry and empower professionals to manage their careers. Our new product, AlgoMe Community, is placed to become the hub for the discussion between FinTechs and the companies and professionals in the wider Investment Management ecosystem.
       
      Join AlgoMe Community today
       
      AlgoMe Community - community.algome.com
        • Like
      • 0 replies
    • I've been trying to track down details on that statement from the CBI, but I'm not sure they elaborated on what the "unintended consequences" could be - I assume one could be wage inflation due to reduction in the negotiation advantage of the employer.
       
      Whether this is a bad thing is debatable when (by some measures) wage growth has been stagnant in the UK for longer than any time since the Napoleonic wars..
       
      Reality Check: Is pay growth the worst since Napoleon?
      WWW.BBC.CO.UK Reality Check examines the claim that real-wage growth is at its worst since the 18th Century.  
    • How do we solve the the Asset Management industry issues of today and tomorrow?
       
      We think we might just have the answer.
       
      When we created AlgoMe, we set out to empower professionals so they can manage their careers through technology, data and industry insight. With our career management platform, we‘ve delivered this but we know there‘s much more to be done.
       
      The Asset Management industry is in a state of flux. Right now lower fees, higher costs, new technology and increasing regulation, along with changes to the workforce, mean we need access to technology, data and industry insight more than ever before. This is why we‘re taking an exciting step by opening AlgoMe Community, the place that brings the Asset Management industry together to drive open conversation and essential innovation.
       
      AlgoMe Community is a members-only community exclusive to the industry and associated professions.
       
      Membership is free, members are verified and use their own names to create a profile – here are the key benefits:
       
      1. A community for Asset Management
      We have created a standalone space for asset managers meaning discussions and groups are centred around highly relevant areas and get to the heart of issues quickly. We will also be hosting regular events both online and offline to address industry challenges and help our members drive the agenda.
       
      2. Keep your finger on the pulse
      Not sure about Brexit or SMCR? Want to know what the latest research on AI is? The AlgoMe Community gives you direct access to all of these discussions. AlgoMe is working with a number of partner organisations to bring you the latest thought leadership, insights, blog posts and white papers to keep you abreast of the latest trends in Asset Management.
       
      3. Grow Your connections outside of your existing network
      There are a lot of bright minds out there. Over 40,000* people are currently working within the Asset Management industry according to the Investment Association. This number is likely to be 200k+ across Europe with the firms and organisations that make up Asset Management ecosystem. That’s a lot of new connections to make.
       
      4. Grow your personal brand
      Building your personal brand is critical to a successful career. AlgoMe Community gives you a platform to build your credibility and authority among your peers. It’s also easy to start your own blog to get ideas a wider audience and build up a following of other members.
       
      Join AlgoMe Community for free today and connect with the Asset Management industry.
        • Like
      • 0 replies
    • Revolt announced it will be offering ETFs to its customers....
      http://igniteseurope.com/c/2090843/247783/revolut_offering_bound_appeal_investors?referrer_module=emailMorningNews&module_order=3&code=WTI5c2FXNHVibWRBWVd4bmIyMWxMbU52YlN3Z01UQTROemN5TURRc0lERXlNVFV4TkRjMk5EWT0
      • 2 replies
  • Categories

  • Similar Content

    • Eva Keogan
      By Eva Keogan
      2018 was always going to be an interesting year. Kicking off with MiFID II, moving to GDPR in the late Spring and of course this Summer brought a surprise World Cup Semi Final and a blistering heat wave (but a still-stagnant Brexit) suffice to say, it’s been a busy time all round.
       
      At AlgoMe we think it’s really important to understand what our wider community is thinking and to get under the skin of the burning issues for 2018.  As result we’ve created The AlgoMe Industry Pulse report which we’ve published today. It has looked into these key issues and themes, from regulation through to Brexit, unearthing some interesting and useful insight. We found optimism and change, along with a level of insecurity too.
       
      What drove these varied responses? Well optimism came in the shape of the 59% who believe Gender Pay Gap Reporting will improve the career progression of women whereas change with learning MiFID II and GDPR is affecting around two thirds of people. Conversely Brexit is creating uncertainty on a number of levels – people want to stay in London, but they’re concerned about their jobs and whether their companies will move away. 30% of those surveyed felt Brexit is a risk to their job security. While 68% believe their companies will stay in the UK, only 54% of individuals said they will definitely stay put versus 27% who are actually considering relocating. When it comes to relocation people chose Dublin, Paris and Amsterdam as the top three choices of European cities to move to. Additionally, regulation will take add to felt insecurity this year with MiFID II impacting 64% of people’s roles and GDPR 60%. Diversity in the workplace is considered important by 64% with 20% remaining neutral and 16% in disagreement, demonstrating there is still a lot of work to be done in both these areas.
       
      We’ve developed 5 key insights which summarise the in depth research:
       
       1. Job confidence pre-Brexit: A workforce in need of reassurance
      Industry and government need to act fast to gain the confidence of the sector as 30% are feeling insecure about Brexit and believe their jobs may be in jeopardy.
       
      2. Will London remain the financial centre of Europe? Best to leave the lights on post-Brexit
      The City is definitely open for business; our industry sector is loyal to London and a majority of workers want to stay here post Brexit.While 27% of respondents expressed they would move as a result of Brexit and 14% of felt strong about this, most people (54%) would not consider moving as a result of Brexit, whereas 68% believe their companies will remain in the UK.  There’s no clear leader in Europe to replace London when it comes to the most desirable places to relocate to and work from; Dublin was the top location (25%), followed by Paris (21%) and Amsterdam (19%).
       
      3. Regulation is a necessary inconvenience:
      Undoubtedly 2018 is a big year for the regulatory calendar and this is having an impact in the short and long term, so we expect temporary upheaval while MiFID II and GDPR are bedded into to working practices
       
      4. Gender Pay Gap – Unwelcome truths for some, seen as much needed by the majority:
      The implication for Gender Pay Gap Reporting is, it will continue to highlight industry inadequacies for some time; transparency and action should expedite change
       
      5. Diversity – More change afoot needed to accommodate a changing workforce:
      Diversity will need to be top of the agenda across the board to effect meaningful progression across the industry
       
      We hope you enjoy this latest report and find the insights valuable to yourselves as professionals, you can download your free copy here.
    • Rob Carter
      By Rob Carter
      Brexit, MiFID II, GDPR, Gender Pay Gap and Diversity are the themes we consider top of mind currently which is why we’ve created the Summer 2018 AlgoMe Industry Pulse Report.
       
      We wanted to get under the skin of some of these key events and burning issues for 2018. In doing so, we revealed some very interesting results and statistics.
       
      Given a choice of 7 cities, Dublin, Paris and Amsterdam are the top three choices for Asset Managers, Fintech and Financial Services employees to relocate to following Brexit. While 54% would not consider moving as a result of Brexit.
       
      When it comes to regulation; we are not surprised to find MiFID II and GDPR will affect over 60% of the roles in the industry.
      Positively, 59% believe Gender Pay Gap Reporting will improve the career progression of women.
       
      Please read the report for the full information and do get in touch if you would like to know more about your industry workforce.
       
      Rob Carter, CEO, AlgoMe
    • Andy Milner
      By Andy Milner
      The UK’s global reputation as a leader in stewardship and corporate governance has contributed to Britain being able to effectively compete in the global economy, attracting companies to list in the UK, as well as being a factor for investors investing their capital in UK companies.
       
      In order to retain that position, businesses are required to respond to investors’ rising demand for accountability and transparency on issues including executive remuneration, board effectiveness and the conduct of privately-held companies. In August 2017, the Government set out a range of legislative and business-led measures that aim to improve corporate governance and provide greater transparency and accountability on executive remuneration, stakeholder voice, and director duties.
       
      This event marks an important opportunity for senior board members and company secretaries, as well as others focused on corporate governance, to review the Government’s reform agenda and assess its effectiveness and future development following some recent corporate failures. It will also be an opportunity to hear directly from the Government, industry leaders, institutional investors and The IA’s Stewardship and Corporate Governance Team about the developments and what can be done in order to improve corporate governance so that British businesses can continue to thrive in the future.
       
      https://www.theinvestmentassociation.org/training/events/event-details.html?eventtemplate=102-The-IA-Stewardship-and-Governance-Conference%3A-Building-Trust-and-Delivering-Value&event=232
       
×

We use cookies to give you the best possible experience. If you continue, we’ll assume you are happy with this. For further information, see our Privacy Policy.