Real Estate

Forcing pay ratios into the open doesn’t change anything in itself


A lot of faith is being invested in the idea that the arrival of pay ratios – meaning the mandatory publication of the gap between the chief executive’s rewards and those of the average earner in a company – represents a game-changer. Andrea Leadsom, the business secretary, called the legislation, which applies from this year to companies with more than 250 employees, “world-leading”. Peter Cheese, chief executive at the Centre Institute of Personnel and Development (CIPD), thinks 2020 “is the first year where businesses are really being held to account on executive pay”.

Believe that latter claim when you see it. Forcing pay ratios into the open doesn’t change anything in itself. Indeed, the numbers can be deduced already in rough form, which is how the CIPD and the High Pay Centre make their annual calculation of “High Pay Day”. At 117 times average workers’ salary (using 2018 numbers), FTSE 100 bosses, as a group, earned the typical workers’ annual salary for 2020 by 5pm on Monday.

For pay ratios to disrupt this pleasant state of affairs for those in the boardroom, two things would have to happen. First, companies would have to feel some embarrassment about the data. Second, big shareholders would have to insist on reform. Neither seems likely.

Not all chief executives are as shameless as Jeff Fairburn, housebuilder Persimmon’s former £75m boss, but the new requirement on companies to offer a “narrative” justifying pay decisions is hardly onerous. Pay committees are versed in the arts of self-serving comparators, or have consultants to fill the gaps.

On the shareholder front, there are investment houses who protest about excessive boardroom pay, but Fairburn’s package, the most egregious example of undeserved reward for many years, still received 51% approval in 2018. Big US investing institutions, who can be found at the top end of most FTSE 100 companies’ shareholder registers, aren’t interested in UK pay practices. Larry Fink, chief executive of BlackRock, the world’s biggest fund manager, likes to warble about the need for companies to have a “purpose” but, given that he’s paid $20m-plus in an average year, he’s not about to turn into an evangelist for greater pay equality.

None of which is to bemoan the arrival of pay ratios. Transparency is worthwhile and it’s possible that workers’ negotiating clout will be marginally enhanced in unionised workplaces. But remember: pay ratios emerged as a fudged compromise when Theresa May was lobbied out of her idea of putting workers on boards, or at least on pay committees. The compromise is one that firmly favours the current setup.

HS2 could suck spending from rail projects that will deliver more benefits to more people

Tony Berkeley’s view that parliament was misled about the costs of building HS2 sounds correct. From 2015 until last year, government ministers tried to maintain that £56bn was “the only budget” for the proposed high-speed railway. Then, last September, transport secretary Grant Shapps conceded the figure could rise to as much as £88bn. It is hard to believe none of the increase had been foreseen.

Lord Berkeley, the dissenting member of the panel reviewing HS2, is now being rubbished by government officials for suggesting the true cost will rise to £108bn at 2015 prices. Why? His estimate looks as credible as any produced by HS2 and its lobbyists over the years.

The chances of the mega-project being scrapped, however, look slim. The cost/benefit arithmetic is less than compelling, even on the new official estimates, but Boris Johnson’s government will be terrified of doing anything that could upset the mantra that the north will receive an “infrastructure revolution”. The sensible solution, though, would surely be to build HS3 first – that’s the Northern Powerhouse Rail project to upgrade links between major northern cities.

Would northern mayors be so keen on a fast railway to London if they were offered earlier rail improvements on their own patch instead? We’ll probably never find out, but it’s the right question to ask. The danger with HS2 is that it could suck spending from rail projects that will deliver more benefits to more people more quickly.



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