Churches speak out on executive pay

A new report says we should focus on the ratio between the highest and lowest paid in a company

One of the great disappointments arising from the financial crisis is that despite the enormous support given the financial sector by taxpayers, and despite the concern expressed by so many about executive pay, little has changed.  Large bonuses are still being paid.  Last year, Shell paid bonuses to its directors even though they missed the target that had been set.

Bishops and other church leaders often speak out against excessive pay schemes.  Yet there has been very little analysis from the church investing community on what principles should be applied when looking at pay packages.  The Church Investors Group has launched a report on executive pay which meets this need.  The Church Investors Group brings together church investing bodies with over £12bn under management.

The independent report is the only report of its kind in the City in that it contains a section on relevant theological perspectives.  It focuses on justice and the need to treat people fairly.  We should focus not just on the highest paid, but on the lowest paid too.  The authors propose a ratio of 75:1 between the highest pay level and the lowest 10% in a company.  This ratio has attracted some attention.  The authors are not arguing against high pay (linked to performance).  In effect, the authors are asking us, why should the highest paid in a company be paid more than 75x the lowest?  This is a difficult question to answer. 

The report is about more than the ratio of course.  It encourages shareholders to link pay to performance and to discourage companies from competing to award higher levels of pay to their executives.  It also advocates simple and transparent remuneration packages so that it is clear what is being awarded.

The report provides some theological ballast for the chuch when speaking out about executive pay.  However, it also presents a challenge to the way things are now.  Companies should be run differently.  Investors should be bolder.