David Hughes: What impact will CEO-to-employee pay ratio legislation have?

David Hughes

The government’s tactic of naming and shaming organisations where there is significant shareholder opposition to senior executive remuneration packages raises the possibility of negative publicity for organisations with the largest disparity between executive salaries and workers’ pay. It may already have started to take effect, with the average pay of chief executives in Britain’s biggest listed organisations down by £1 million per annum on average for 2016, according to statistics published by the Chartered Institute of Personnel and Development (CIPD) and High Pay Centre in August 2017, although there may be other reasons for that.

Ultimately, though, organisations will still seek to recruit the best senior talent they can afford and will have to pay accordingly. I suspect that while there will be some impact from these proposals it will be limited.

Possibly the most interesting aspect of the measures to be introduced will be the requirement that employers will have to attempt to justify pay disparity. I can see that being an especially thorny issue for organisations imposing pay restraint on workers or engaged in pay negotiations. Certainly those negotiating for pay increases will find it illuminating to scrutinise the pay of senior executives and the justification for that.

David Hughes is employment partner at Addleshaw Goddard