High Pay Commission: excessive high pay is bad for our economy

"Excessive high pay damages companies, is bad for our economy and has negative impacts on society as a whole", according to the final report of the independent High Pay Commission, Cheques with Balances: why tackling high pay is in the national interest (on external website). The report is the result of a year-long investigation into the growing pay differential between top earners and the rest of society carried out by the commission, which was established by the pressure group Compass with the support of the Joseph Rowntree Charitable Trust.

The report focuses on the private sector, as the issue of fair pay in the public sector was examined by a Government enquiry headed by Will Hutton, which published its findings in March 2011.

The High Pay Commission identifies a dramatic growth in income inequality since the late 1970s, with those at the top seeing their pay "explode". It criticises the lack of transparency in the decisions leading to escalating pay for senior executives, describing "ever more complicated pay arrangements hidden within reams of remuneration reports". It also finds that, despite attempts to link pay to performance, rewards for failure continue. At a time when pay awards across the economy are running well behind inflation [£], and millions of workers in the public sector are seeing their pay frozen, there is increasing disillusionment and distrust of business among the public.

The commission examines the business, economic and social case for fair pay, and sets out a 12-point plan to "get back to basics for executive pay" and open up top pay to more scrutiny, based on the principles of fairness, transparency and accountability. Its recommendations include:

Executives should be paid a basic salary, with one additional performance-related element "only where it is absolutely necessary".
Companies should publish an anonymised list of their top 10 highest-paid employees outside the boardroom.
Remuneration reports should be presented in a standardised format.
Fund managers should disclose how they vote on all issues, including pay.
Employees should be represented on remuneration committees.
Companies should publish an annual statement of the distribution of income, including changes in the executive team total reward package and total staff costs.
Publicly listed companies should produce fair pay reports, including changes in the ratio of highest to median pay.