The Advisors' Blog

– Broc Romanek

Here’s the intro from this Manifest blog:

While regulation on directors’ pay can be counter-productive the business community needs to address the concerns of politicians and the wider public about pay inequality in the UK, advisors PricewaterhouseCoopers (PwC) have warned in a report. This is a response to Teresa May’s pledge to tighten up executive pay regulation made just before she became Prime Minister and reported on in a previous blog.

PwC notes that since the 1970s to today while globally people have been pulled out of poverty in large nunbers incomes for the developed world’s working and middle classes (between the 80th and 95th percentiles of the global income distribution) have largely stagnated in real terms. Meanwhile real incomes of the Top 1% globally have increased by over 60%. These trends have been reflected in growing inequality in a number of rich western countries, and in particular the UK and the US.

It was notable that May devoted significant attention to the executive pay issue in launching her campaign for leadership of the Conservative Party, as had Michael Gove, the report said. All the candidates emphasised the importance of an economy that works for all and so income inequality is a concern that now spans political divides, it concludes. Executive pay is a public concern that politicians can not ignore. Research carried out for PwC in June 2016 by Opinium 4 showed that two-thirds of the population believe that executive pay is generally too high, over half believe it is a big problem in Britain today, and 72% said that it made them angry if a CEO is being paid a lot and their company is doing badly.

PwC analysed the Pew Research Centre’s data on attitudes to inequality against data on actual inequality from the OECD Top Incomes database and found that there is virtually no correlation between concerns about inequality and actual levels of inequality in the countries where comparison data exists. Levels of concern about inequality are much higher in France, Italy, and Spain than in the US and UK, despite levels of inequality being up to twice as great in those latter two countries, PwC found. By contrast, PwC discovered that concerns about inequality are very highly correlated with concerns about employment opportunities. This suggests, according to PwC, that anger about inequality and CEO pay is primarily an expression of frustrations about job insecurity and stagnating wage growth for ordinary workers.

The research carried out in June found that solutions to high CEO pay continue to be seen as being able to be tackled by shareholders and PwC said it is encouraging that much of the public is still looking for a market rather than a regulatory answer to the problem. May has proposed changing shareholder votes on pay from advisory to binding, more transparent pay disclosure and simplified bonus schemes. Separately she called for employees to be represented on company boards.