Pay ratios ineffective in tackling inequality feel employers
Rachel Muller-Heyndyk, February 23, 2018
Employers and policymakers should be cautious in how they approach pay ratios as they could be too simplistic
Only a third (33%) of employers think the introduction of pay ratio reporting will lessen pay inequality between executives and other employees, according to research from XpertHR.
The government plans to introduce a requirement for all listed companies to publish the ratio of their CEO’s pay compared to the average pay of their UK workforce by June. But just 13% of employers currently calculate this, the survey found.
Despite reservations from a third (33%) of employers, the report uncovered broad support for the government’s proposals, with 61% of respondents backing the plan. However, just 39% want to see this extended to all employers, with concerns around the administrative burden this could place on small businesses.
Other concerns raised included the value of the data (particularly in sectors where there are a significant number of low-paid workers), the ability to keep individual salaries anonymous, and the relevance of figures that don’t take into account the different roles that executives and staff undertake.
Among those in favour of reporting ratios, most believed that increased transparency would be positive, with hopes that it will increase scrutiny on executive pay and raise employee engagement.
The government's proposals will also require companies to explain changes in their ratio from one year to the next. The research revealed that some employers are concerned that this will simply allow firms to justify pay levels rather than move the debate forward.
Stephen Perkins, professorial research fellow at the Global Policy Institute, cast doubt over the concerns raised in the report about small businesses' ability to process the data.
“I don’t buy the idea that publishing pay ratios would be difficult for smaller businesses. Employers will have the details of the pay of everyone in their company, and compiling them would not involve any work whatsoever. As such this should be treated as a red herring,” he told HR magazine.
However, Perkins emphasised that employers and policymakers should be cautious in how they approach pay ratios, as they could be too “simplistic” without further analysis and supporting narratives.
“There are far bigger questions surrounding how pay ratios should be published, as doing so without further examination into how pay differences are quantified is far too simplistic," he said. "We need to ask ourselves on what basis should these pay ratios be set? Pay ratios have potential, but only if there is adequate research behind them.”
Commenting on the role of HR, he added: “It is incumbent on HR to tackle the problems of executive pay, and to show our professional worth through speaking truth to power. We are asking the same questions all the time, and I know from speaking to several FTSE 100 chairs this is an issue they take seriously. There needs to be an action-orientated response in decision-making in this area.”