High Pay Centre says companies ‘must end fast buck culture’ and take long-term view of economy
The way the bosses of FTSE 100 companies are paid encourages them to focus on making a “fast buck” rather than taking a longer view of the economy, according to research out on Monday which recommends half their pay should be linked to non-financial targets.
Research by the High Pay Centre found measures of financial performance dominated the way top bosses were paid, rather than measures linked to corporate culture or business reputation. The gauge of total shareholder return is used to calculate at least one element of pay by 74 out of FTSE 100 companies, with 96 companies using TSR or earnings per share, or a combination.
Chuka Umunna, the shadow business secretary, said: “The scourge of fast-buck executive pay is alive and well and fuels excessive short-term decision making which is bad for our economy. Labour, along with others, has led calls for reforms to executive pay but government has failed to act decisively.”
The High Pay Centre repeated its call for employee representatives on boards to encourage a longer investment focus by the chief executives of the UK’s biggest companies. It suggested requirements for the pension fund trustees that own shares to consider the environmental and social impact of the company in which they are investing. Companies should be forced to report on their social and environment impact and new tax incentives should encourage companies to switch their focus away from pure financial metrics.
Some companies have introduced non-financial measures in their executive pay deals. BP did this after the gulf of Mexico disaster, and HSBC links its directors’ pay to reputational issues.
Vince Cable, the business secretary, last year helped spark a “shareholder spring” by launching consultations on executive pay but rejected the idea for employees to sit on remuneration committees. He is, however, giving shareholders a binding vote on executive pay deals and attempting to clamp down on rewards for failures by requiring a vote on payoffs of more than a years’ salary.
Deborah Hargreaves, director of the High Pay Centre, said: “British business will erode its competitive edge even further if it doesn’t start looking beyond share prices and reward executives for their success in fundamental areas of non-financial performance. We’ve got to start taking a longer term view and that means persuading business that performance in areas like corporate social responsibility, employee engagement and customer satisfaction rates are the key to lasting business success.”