UK Labour Party Leader Floats Maximum Pay Ratios; FTSE 100 Legal & General Group to Publish Voluntary Pay Ratio
January 21, 2017
Building on Prime Minister Theresa May's initiatives to rein in executive compensation and corporate governance, including a mandated pay ratio disclosure, the head of the center-left UK Labour Party, Jeremy Corbyn, floated the idea of implementing pay caps based on pay ratios – an effective “maximum” wage – for executives at government contractors although he suggested it could cover star athletes as well as highly paid CEOs. Mr. Corbyn declined to define exactly what the maximum allowable ratio would be; however, former Prime Minister David Cameron had proposed a 20:1 pay ratio cap for public sector employees and now all government salaries exceeding £150,000 must be approved by a cabinet office. The proposal of having a cap on pay was immediately deemed unworkable, and Mr. Corbyn responded by walking back the proposal in favor of four, slightly less radical ideas, some of which have been seen before, including:
Requiring a majority of workers on compensation committees;
Higher taxes on top rate earners; and
Creating lower tax rates for companies with lower pay ratios.
Certain lawmakers in the U.S. have floated proposals to adopt the second and third options as possible solutions for income inequality, with Portland, Oregon adopting higher taxes on companies with higher pay ratios.
In addition to Mr. Corbyn’s talk of pay ratios and caps, for the first time, an FTSE 100 company has announced it plans to voluntarily publish a pay ratio in its annual report, which includes a report on executive compensation. Insurer Legal & General Group Plc, which has been more progressive on pay and governance issues, will be the first major UK listed company to voluntarily disclose a pay ratio in effort to seemingly be out ahead of the UK government’s efforts to require a mandatory pay ratio disclosure.