Document summary
There is a growing consensus across geographies, socioeconomic brackets and the political spectrum that the pay gap between workers and executive management should be reduced. It is unclear whether the introduction of pay ratios in the US from 2015 will give investors new ammunition to help achieve this. Nevertheless, remuneration has become a social issue and one that is increasingly linked to income inequality.
How value is distributed between management and workers when profits rise and fall (pay ratio evolution) may well become a key issue for investors. Pay ratios, however, may still not be the ultimate weapon for curbing executive pay inflation, due to peer benchmarking, and the limitations of these complex and cumbersome ratios for the management of human capital. This report acknowledges the limited visibility on CEO pay to average workers’ salaries and the potential bias that can distort a comparative analysis of pay ratio structures. For example, it suggests that sectors with more exposure to emerging markets (particularly Africa) have greater pay disparities: we suspect companies operating in such sectors will continue to face upward pressure on wages.
With research partner the Hay Group, Kepler Cheuvreux highlights pay disparities across Europe. Based on 2013 data for a universe of 424 companies, the report looks for 'the good, the bad and the ugly', as we wait for legislation to be introduced in the US and potentially later in Europe. The authors believe investors will come under increasing reputational pressure to explain their support for remuneration policies that show high disparities between executives and workers.