Claw-back policies are not enough to tackle pay gap between high and low earners

Employers’ increasing provisions to claw back pay from top executives who perform poorly will not be enough to eliminate pay disparities between senior employees and the rest of the workforce.

A survey by PricewaterhouseCooper’s (PWC) survey found that by next year around one third of organisations will include claw back mechanisms in executive remuneration schemes. In response, research and advisory consultancy Pirc said that the membership of remuneration committees also needed to be widened.

A spokesperson for Pirc said: “The idea that has been floated by a few people including [leader of the opposition] Ed Miliband is that maybe employers could have employee representation on remuneration committees. The idea is that this would bring a dose of reality to deliberations about how to reward executives. It is in the corporate governance code that the remuneration committee should be sensitive to pay and conditions across the group.”

PWC’s survey of 76 FTSE 350 firms, however, also showed that 79% expected executives’ pay will rise in 2012. Of those firms expecting executive pay to rise, 65% will increase base salaries only while a further 30% will lift salaries along with other components, such as long-term incentives. Salary increases are expected to be between 2% and 4%, broadly in line with 2011.

Sean O’Hare, reward partner at PWC, said: “Even moderate pay increases in line with inflation are likely to prove controversial given the building public and political pressure to address the widening gulf between the highest and lowest earners, compounded by tough economic conditions.†

“But whether anticipated salary rises play out next year will depend on whether markets improve. Increases that are not aligned to company and share price performance are likely to meet strong resistance from shareholders.”

This autumn, business secretary Vince Cable will announce the results of a consultation on executive pay. It is likely to include a number of proposals on how to improve transparency and links between pay and performance.

Post your comments and thoughts on how you think executive pay should be tackled below.

For more articles on pay and bonuses