Will publishing CEO-employee pay ratios change anything?

The government’s reforms concerning the ratio of CEO pay to average employee earnings are "unlikely to change very much" says Warwick Business School expert.

As of today, new laws will force all listed companies to reveal the pay ratio between bosses and workers, alongside other reforms to boost employee perspectives in the boardroom. According to Keith Grint, Warwick Business School Professor of Public Leadership and Management, this is unlikely to change very much.

“The ratio has been growing for decades, shows no sign of decreasing, has never been related to any kind of company performance, and manifests radical differences from the ratios that Germany or Japan have,” he says.

“The implication of this is that executive pay is really a symbol of Anglo-Saxon beguilement with individual leaders and the usually false attribution we make between the effect of the leader and the impact on the organisation.”

According to Grint, the UK and the US seems to have a romantic attachment to ‘heroic’ individual leaders that bears little relationship to the actual impact – good or bad – that individual leaders have. This isn’t the case in other countries and cultures. “Germany and Japan have a closer attachment to collective and technical leadership and the rewards for CEOs are proportionally smaller.”

“The proposals for worker representatives on boards are similarly constrained, first by the point that it might not even be worker representatives but those appointed to represent their interests, however that is defined, and second by the voluntary and limited nature of the regulations,” he adds.

“The UK has never instigated the kind of collective representation that Germany embodies and the occasional experiment – such as the Employee Directors in the Post Office that were introduced under the Callaghan government and quickly removed under Thatcher – demonstrates that the cultural predilection for individual leaders will undoubtedly hamstring these even weaker proposals.”

Praseeda Nair

Kellen Rempel

Praseeda was Editor for GrowthBusiness.co.uk from 2016 to 2018.

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