FTSE 100 Company Pay Ratios

I beg to move,

That this House has considered FTSE 100 company pay ratios.

It is a privilege to be under your chairship today, Mrs Moon. I have to be honest and open with the Chamber: I am guilty of trying to dumb down parliamentary proceedings; I attempted to call this debate “Fat Cat Friday”. However, the Table Office pointed out that that would not be correct in the circumstances. I wanted to call the debate that because by lunchtime on Friday 4 January, the UK’s top chief executives had earned more than their average employees would earn over the entire year. Those chief executives take home astronomical figures that are more like telephone numbers than salaries. Although the average employee has seen their salary remain stubbornly low, the pay packets of the FTSE 100 chief executive officers have risen by an average of 11% over the last year alone, soaring to a staggering average of £3.9 million per year. How can that be right, just or fair?

Let me emphasise right from the beginning that I have absolutely no qualms about those at the top being paid well; I appreciate the demands of running one of the UK’s biggest organisations. And I am not, at the moment, calling for a pay cap or a widespread cut to chief executives’ pay. I am calling for fairness—for the importance of the contribution of those at the bottom to be recognised in line with the contribution of those in the boardroom; and for organisations to determine the pay and reward schemes of all employees in one whole-company pay policy.

I will describe in more detail the pay ratios across the FTSE 100, and will consider the causes and consequences of such extreme differences in pay within organisations. Then I hope to detail the reality in some specific organisations, before considering the tangible steps that the Minister and this Government should take to combat such unfairness in the workplace.

Let us start with the FTSE 100. In advance of this debate, Will Turvill of The Mail on Sunday made a remarkable analysis of the pay ratio between FTSE 100 CEOs and the average wage of workers at their firms. Staggeringly, his results reveal that one FTSE 100 company, Melrose Industries, pays its chief executive a completely eye-watering 1,000 times more than the average wage of its employees. I appreciate that this is an extreme example, but few of the other 99 companies on the FTSE 100 index can consider themselves exempt from being similarly unjust.

Even among the FTSE 100, there is inconsistency and disparity. A FTSE 100 CEO is more likely to be called David or Steve than to be a woman or to come from an ethnic minority. What is more, the six female FTSE 100 chief executives earn just 54% of the salary of their 94 male colleagues. However, that is a debate for another day, because it is the FTSE 100 index as a whole that I will focus on today.

Back in the late 1990s, the pay of a FTSE 100 CEO was an extortionate 59 times higher than that of their average employee. If we fast-forward 20 years, it has sky-rocketed to being an eye-watering 145 times higher, and rising. Let that sink in: it means that it would take the median UK worker an extraordinary 137 years to earn a FTSE 100 CEO’s annual pay. Is a chief executive today working that much harder than they did just 20 years ago? The statistics suggest otherwise, as there is very little evidence that soaring CEO pay has incentivised or been the reward for better company performance, because the value of the FTSE 100 has changed little since the late 1990s. However, the pay of FTSE CEOs has increased by 300%. Meanwhile, two thirds of these top firms fail to pay the living wage.

Such mind-boggling figures are difficult to comprehend. To provide some perspective, a FTSE 100 CEO is paid an estimated 132 times more than a police officer, 140 times more than a teacher, 165 times more than a nurse, and an astronomical 312 times more than a carer. These indefensible ratios are a slap in the face for hard-working employees across our country who, at the very least, expect to take home a fair day’s pay for a fair day’s work.

Before this debate, the House of Commons digital engagement team kindly sought the views of the public on this matter. One person said that

“when their employees are working full time and not being able to afford proper accommodation, energy, food, transport or children, suddenly the difference in pay seems rather stark.”

Another person suggested that

“there should be a pay ratio, so if CEOs wish to continue enjoying these luxuries they must ensure that their lowest paid employees are earning a sufficient amount.”

I believe that the pay ratios that I am describing are utterly unacceptable, unjust and unfair. As the executive director of the Equality Trust, Dr Wanda Wyporska, says:

“A society that values its teachers, care workers and nurses at less than 1% of a FTSE CEO is beyond broken”.

Her view is a common one, with an Oxfam survey finding that 72% of people want to see the Government urgently addressing the income gap between rich and poor.

What is causing such extraordinary executive pay to continue soaring? Perhaps it is the fact that former or serving chief executives pack the remuneration committees that set pay levels at large companies; perhaps it is the decline in trade union membership; or, most likely, it is the inaction of the Government on ensuring that fairness is at the heart of the world of work.

These pay ratios stem not just from extortionate salaries, but from extraordinary incentive schemes that are increasingly reserved only for those in an organisation’s boardroom. I must be clear once again: I have no problem retaining incentive pay for executives. However, incentive schemes should be available to all staff on the same terms.

I am sorry for stopping a good speech, but my hon. Friend mentioned incentives; these CEOs also have the incentive of awards, including CBEs. Paula Vennells of the Post Office got a CBE, as most of these fat cats do. They end up getting awards, OBEs, knighthoods and all the rest of it, while the workers are suffering. There are people at the Post Office who face difficulties because of Horizon, a new system that has come in. Good postmasters—good people who are loyal to their communities—have been taken to court, and some of them are now going back to court. Will these CEOs be stripped of their knighthoods and awards?

I thank my hon. Friend for that intervention. I will consider the Post Office a little later in my speech.

Having such incentives for all staff seems like a common-sense way of providing sensible alignment between average workforce pay and executive pay. It is a straightforward, practical idea to have a whole-company pay policy. Let me describe in more detail the reality at specific organisations in the FTSE 100 to illustrate the inequality that grows in the absence of a whole-company pay policy. I will start with Persimmon, whose former boss, Jeff Fairburn, last year received, on the back of Help to Buy, £47 million, which is an extraordinary 882 times the average salary of his workers, before he lost his job. We all remember the backlash when Mr Fairburn was granted a £75 million bonus. In the heart of a housing crisis, do we really think that he should receive such a staggering sum, or should we have seen that money helping young couples who are looking to get on the housing ladder?

How about the owner of Ladbrokes, GVC, whose chief executive, Kenny Alexander, raked in pay that was a huge 484 times higher than the average pay of his workforce? And how about Tesco, whose CEO, Dave Lewis, received a £4.9 million pay packet, which is 303 times greater than the average pay of his employees? Is he working 303 times harder, longer, or better than them?

Then there is Sainsbury’s: a pillar of the Great British high street. Over 148 years, it has established a reputation as a leading retailer and a good company to work for, but its lack of a whole-company pay policy has led to the most disgraceful discrepancy in its staff salaries. Under the guise of an increase in basic pay, 9,000 loyal and long-standing Sainsbury’s staff are set to lose up to £3,000 a year from 2020. They will forgo their paid breaks, the night shift will be shortened, and their Sunday premium will be removed. While those shop floor staff will see their bonus scheme scrapped under these new contracts, CEO Mike Coupe takes home an eye-watering bonus of £427,000 as part of his £3.4 million pay packet, and although the salaries of those staff are crumbling, their bills, mortgages and rent are still the same at the end of each month. I wonder whether Sainsbury’s remuneration committee gave a moment’s thought to those staff when it signed off its executive bonuses. When the board and remuneration committee sit down to discuss what the pay package for Sainsbury’s CEO is going to be, they should also be deciding the pay and conditions for their lowest-paid staff. If they thought about those two things together, there would be a bit more modesty, a bit more honesty and a bit more embarrassment.

It is a pleasure to take part in this debate, Mrs Moon, and I congratulate the hon. Member for Mitcham and Morden (Siobhain McDonagh) on having secured it. It is unfortunate that it is not as well subscribed as I had expected it to be; I had thought that this was a great debate to be involved in, on an issue that matters a huge amount to an awful lot of people who live in all the countries of the UK. I will highlight a few figures, some of which have already been mentioned by the hon. Lady; I will also talk about what we are doing about some of these issues in Scotland, and what we would like to do about them.

The remuneration of FTSE 100 CEOs between 2009-10 and 2017-18, over the course of this Conservative Government, has gone up by 66%, which is a significant increase. One of the interesting stats that I discovered when I was looking into this issue is that in 1980, median FTSE 100 CEO pay was 11 times that of the median worker. By 2010, that had risen to 116 times the pay of the median worker—an absolutely massive increase that surely does not reflect an increased workload of that level. I imagine that those CEOs are not doing 10 times the amount of work they were doing in 1980, and that the people who are working at the bottom of those companies are working just as hard as they were in 1980. An increase in the ratio to that extent cannot be justified.

In 2017, the mean pay of a FTSE 100 boss was £5.7 million. Compared with many people who live in my constituency or throughout these islands, I have a significantly large salary. I am very grateful for that, but even on my relatively large salary, £5.7 million is a number that I cannot even comprehend. It is a ridiculous amount of money for people to be earning.

I understand that the hon. Member for Mitcham and Morden was talking not about the particular salary that those individuals receive but about the ratio, and that is what I want to come on to. The important point about this debate is that it is about equality, and it goes much wider than FTSE 100 companies. We have massive inequality throughout the countries of the UK and much more can be done to improve the situation. When seeking to improve things, I tend to say that we can do so in Parliament, because we have the ability to lead the way as parliamentarians. We often fail, but we have that ability. We also have the ability to legislate to ensure that FTSE 100 companies can lead the way for all companies across the UK in removing the levels of inequality.

I thank my hon. Friend the Member for Mitcham and Morden (Siobhain McDonagh) for securing this important and timely debate. Such debates expose our politics and the difference between political parties. It is vital that we discuss not only pay ratios, but solutions to extortionate pay, such as an excessive pay levy, and improved collective bargaining for workers through strong trade unions as a way to uplift the pay of millions of workers. It is also crucial that we are able to place the extortionately high pay of FTSE 100 chief executives in the context of low pay and the crisis of work in this country, where millions struggle to make ends meet, and where work is certainly no longer the preventer of poverty, which is a reality for millions of people.

Despite this state of affairs, as was mentioned, by lunchtime on 4 January, the top chief executives in the UK had been paid more than their average employee is paid in an entire year—an extraordinary fact. Every single year, that date and time comes sooner in the year. Unless action is taken, it will be one minute past midnight on 1 January when those people will have been paid much more than their employees. Every year, the Government take no action on that extraordinary fact. Those at the top are increasing their wealth.

I agree with my hon. Friend: perhaps this place should relax a little, because “fat cats” is exactly the right title for those executives who now get 133 times more than the average worker, which means that the salary of the average FTSE chief executive is the same as that of 386 workers on the minimum wage. It is politically poignant to note that some people are not outraged by that statistic. They are quite comfortable with the inordinate, huge salaries of executives who are paid grossly more than those who work for them.

I am sure that nobody would argue—my hon. Friend touched on this—that a FTSE 100 chief executive works 133 times harder than a hospital porter, a cleaner or a caterer. I went on a solidarity protest yesterday with strikers at the Ministry of Justice and the Department for Business, Energy and Industrial Strategy. Let us think about the caterer on exactly £8 an hour fighting for the London living wage. That works out at about £1,280 a month if they work a 40-hour week every single week of the month. If we think of rent, transport, bills and food, that person has a tiny amount to live on every month. I am sure nobody would argue that a FTSE 100 chief executive works 133 times harder than a teacher or a nurse in our NHS, or that they somehow have a combined worth of 386 workers.

The hon. Lady is making an incredibly powerful point. Does it annoy her as much as it annoys me that the Tories talk about hard-working families, but they do not mean hospital porters? They mean people who are much higher up the tree. Hospital porters, cleaners, chefs and the people she talks about work incredibly hard every day just to make £8 an hour.

And that work should be valued. It is no coincidence that those people who work really hard, but very often still cannot survive and do not have enough money to pay the bills, get into debt to pay for everyday items—not for luxury holidays, or any luxuries at all. Those people should be at the heart of our concerns in this place. I am mindful never to use the word “earn” when we talk about the pay of the very few at the top. What could they possibly do to earn such large amounts of money?

It is crucial to recognise the context in which FTSE 100 pay ratios are widening. In a stark contrast to the stockpiling of wealth by a few, years of austerity and wage stagnation mean that millions of workers across the country struggle to make ends meet, as I say. In-work poverty is rising and household debt is at its highest rate. Many people rely on borrowing, and one in five workers—more than 5 million people—are paid less than a living wage. That is a huge increase from 3.4 million in 2009. Insecure work has without a doubt become the norm, with nearly 4 million people—one in nine workers—facing uncertainty and worry. They are trapped. To illustrate the low-pay trap, one in four employees earning the minimum wage for five years has been unable to move out of that low-pay trap. Some people do two or three jobs to try to pay the bills, but it has not always been like that.

In 1980, as was mentioned, the median pay of directors in FTSE 100 companies was £63,000, and median pay across the country was £5,400. The ratio of executive pay to the average wage then, less than 40 years ago, was 11:1. In 2002, the pay of a FTSE 100 CEO had shot up to 79 times that of their average employee, and last year it had reached 150 times. This place is doing nothing to stop that runaway train of inequality. I seriously hope that those ratios are unacceptable and completely unjustifiable to anyone. It is particularly obscene that this escalation has come at a time when millions of people are struggling. There is a stark contrast between those two sets of people.

No doubt the Minister will refer to the Government’s reforms to tackle excessive pay in her speech shortly, but I want to make it absolutely clear that under this Government, not only has pay inequality continued to rise, but so has the speed at which it increases. I am proud that Opposition MPs are committed to taking action, because doing nothing is not good enough. When I have been out campaigning, loads of times I have heard people say, “The rich continue to get richer and the poor get poorer. There is nothing we can do about it,” but I fundamentally disagree. Yes, the rich are getting richer, but we can definitely do something about it.

It is a pleasure to serve under your chairmanship, Mrs Moon. I congratulate the hon. Member for Mitcham and Morden (Siobhain McDonagh) on securing today’s important debate. She has a strong, long-standing record of campaigning on behalf of low-paid workers in the economy. I highlight the constructive way in which she approaches working across the House on some of these issues; I know that she secured an Adjournment debate on whole-company pay policy last July.

Executive salaries and pay ratios are undeniably high. Currently, the ratio of the pay of the average FTSE 100 chief executive officer to that of the average UK employee is around 160:1, based on the mean. The median average is 145:1, but it is important to set current levels of pay in a longer-term context. The data shows that executive pay more than quadrupled from the late 1990s to the early 2010s. Pay ratios increased over that period from 47:1 in 1998 to 132:1 in 2010. However, that has stabilised in the last five to seven years, albeit with minor fluctuations from year to year.

The High Pay Centre, which campaigns against high levels of executive pay, acknowledged in its most recent report that UK executive median pay peaked at £4.2 million in 2013, and is around £3.9 million for the latest reported year. That puts the UK on a par with Germany and only slightly above other major EU countries on executive pay levels, despite our quoted companies generally being much larger. In the US, CEO pay is much higher. Median CEO pay for Standard & Poor’s 500 companies in 2017 was around £9.3 million, giving the US a pay ratio of 399:1.

That sets the context, but it is certainly not grounds for complacency. Shareholders and people in wider society have increasingly been questioning how such wide differentials can be justified, both in terms of individual performance and in relation to company pay policy as a whole. The Government share those concerns.

I appreciate the Minister’s honesty. The problem is that when the middle-rate income tax threshold goes up, there are Conservatives who make the case that it will improve life for hard-working families, but very few people in the jobs we are talking about are making £43,000 a year. Maybe the Minister needs to tackle the issue with some of her colleagues.

I thank the hon. Lady for clarifying her point, but I have to say that it is this Government who have increased the threshold year on year. As a working-class Conservative MP, I am proud to say that I am standing up for hard-working people—and when I talk about hard-working people, I mean people who go out every day to earn a living, no matter what sector they are in or what job they are doing.

The Government have responded to the challenging world of work with plans for the biggest upgrade of workers’ rights in 20 years. In December we published the good work plan, which sets out how we will implement the recommendations of the Taylor review. The plan commits us to introducing a right to request a more predictable and stable contract for all workers and to bringing forward proposals for a single workers’ rights enforcement body in early 2019.

The right to request a contract is often signalled as some kind of big victory, but have not workers always had that right? This is nothing new.

We will be making the options for employees clearer. For example, we have already laid statutory instruments to ensure that on their first day, employees are able to get a written statement of their rights. It is about making sure that workers are able to know what rights they have, and that they know that they can ask for that ability.

The Government have also laid legislation that will repeal the so-called Swedish derogation and guarantee agency workers their right to equal pay. After April 2020, agency workers will no longer be able to opt out of their right to equal pay after 12 weeks in the same assignment. In short, we are shining a light on pay at the top and taking action to improve the pay and employment rights of ordinary workers.

I want to touch on a few points made by the hon. Member for Mitcham and Morden. She rightly raised the issue of diversity on boards and gender balance, which the Government are very concerned about. We have started to see results from work on the gender pay gap: we are now at 17.9%, the lowest figure on record. We are working to improve gender diversity on boards, and we have made great progress. The next target and challenge is black and minority ethnic representation—not just on boards, but in the pipeline and among executives in general. That is one of the policy areas in my portfolio, and I take a lot of interest in it.

The hon. Lady asked whether it is right that those in large companies—I think she was referring to companies that are private, but not necessarily listed—are taking large salaries but have not signed up their employees to the living wage. I quite agree that that is not a satisfactory situation, but what is massively important is the highlighting of the issue by the media and wider public, and the transparency that we have enabled so that those companies are held under a tougher spotlight. Customers and suppliers out there who know that information about those companies will need to decide whether they want to deal with them. Things are moving, and it helps that the issue is on the agenda more widely and that more people are aware of what the big bosses are being paid.

For information, my point about the 20:1 ratio was about the public sector.

I thank the hon. Lady for that clarification. However, I point out that a pay ratio of 20:1 could extend to foreign companies bidding for Government contracts, which would raise state aid and World Trade Organisation issues. There are issues with some of the policies and the refining that she may want to clarify further.

I thank again the hon. Member for Mitcham and Morden, who has taken the opportunity to bring this debate about company pay ratios to Westminster Hall. They are an important means of shedding light on pay distribution within companies and how that is changing over time. Their publication will spur companies and their remuneration committees to give greater thought and show more sensitivity to how pay in the boardroom aligns with employee pay. Along with other reforms implemented by the Government, they will ensure that the UK remains a world leader in corporate governance and an excellent place in which to work, invest and do business.

I have had many conversations with the hon. Lady, and I thank her for the way in which she approaches these matters. As I said yesterday in the Business, Energy and Industrial Strategy Committee, these issues will always be under review and we will always be looking at what can be done to improve transparency and clarity so that the spotlight can be shone on organisations. I look forward to working with the hon. Lady constructively on the number of issues that I know she is interested in in this area over the coming months.

Can I ask for your clarification, Chair? Do I have a minute, or two, because we have not reached the time limit?