It is very likely that some form of CEO pay ratio disclosure will become a mandatory annual reporting requirement for UK organisations within the next 12 months. This will be a new addition to the annual report in which CEO pay is expressed as a ratio to that of an average employee. On the surface this has the noble intention of creating both upward pressure on workforce pay and downward pressure on executive pay with a single measure.
However, the current proposals are fraught with difficulty and it may be impossible to avoid inappropriate comparisons and other unintended consequences without substantial changes.
Mercer’s new report "The Pay Ratio is Coming, Let’s Make It Rational" raises concerns in response to the Government’s Green Paper on corporate governance reform, along with our recommendation on what the best approach might be. We have come to what we feel is a more effective and targeted approach to the two underlying problems – the concerns over excessively low employee pay and the perception of excessively high executive pay.
We invite you to get in touch if you have any questions about the report or would like to discuss these issues further with our Executive Compensation consulting leaders.