Publishing CEO pay could create fairer UK wages

Consulting company Mercer believes CEOs should compare their pay to the UK living wage in attempts to create a fairer working environment. The statement comes following the UK government’s review on corporate governance, which aims to produce a direct comparison in pay between an employee and their CEO. While they hope to address concerns of excessively low pay, and reduce perceptions of high executive pay, Mercer believes that it will only undermine current government efforts.

There are several issues Mercer has with the scheme, including the sample of employees used in calculating a fair ratio. Should the range include branches outside of the UK where wages are lower, it could give a CEO a disproportionately high ratio. Similarly if the review only focusses on UK-based branches, then it could encourage companies to outsource lower paid jobs abroad to keep their ratio disproportionately low.

A direct comparison between CEO and employee pay, the company says, could be too harsh a tool with serious drawbacks for companies and workers. Mercer considers the tool misleading, as companies with many temporary or part time staff such as those in the retailing industry would have a very different pay ratio compared to companies such as a UK hedge fund, where an average pay level would be higher. The solution, according to Mercer, is to disclose the proportion of employees being paid under the national living wage, which is currently £7.20 an hour, compared to those being paid twice as much.

“Current proposals are too blunt and will prompt inappropriate comparisons, thereby undermining the intent to make our society fairer,” said Mark Quinn, head of career business at Mercer. “We believe that the best route is for companies to compare CEO and average employee pay with the UK’s living wage, not against each other. This is the best method of identifying whether companies take a comprehensively fair approach to pay throughout their structure.”