2000 words
you need to find specific companies, and put the screenshot on the essay
Assessment Brief
Module Name: Corporate Governance
Module Code
Level
Credit Value
Module Leader
ACC3017
6
20
Dr Stuart Farquhar
Assessment title:
ES1: Essay
Weighting:
50%
Submission dates:
Monday 18th January 2021
Feedback and Grades due:
Please see NILE under Assessment Information
Please read this assessment brief in its entirety before starting work on the Assessment Task.
The Assessment Task
The assessment focuses on limited companies’ compliance with codes of corporate governance.
As a risk and compliance analyst, you have been asked to complete a review of a company listed on the FTSE100 index as of September 2020 as it complies with the 2018 UK Code of Corporate Governance. Your company will be allocated to you in the first two weeks of the module and the list will be added to the NILE site. Each student will be allocated a different company. During the module you will be able to and expected to use your company in class activities both individually and in small groups with your peers to help you develop your understanding of the requirements of the assessment. To undertake the assessment, you will need to obtain/download a copy of your company’s most recent annual report (2019 or 2020) within which there will be a section on Governance. This is the pertinent section of the report with which you will need to become very familiar.
Using your company’s corporate governance report, critically review the compliance of your company based on the following criteria:
1. Discuss the firm’s relationships with its stakeholders: Assess the extent of the company communications with stakeholders in terms of culture, company’s purpose, values, and strategy. Justify if the compliance to code requirements is evidenced. In the implications section, drawing on academic theory and evidence, critically evaluate whether your company’s approach is effective. (Approximately 200 words)
The answers should be structured as follows:
Company purpose and communication with shareholders
Approach and Justification
Did the company comply with the code? Explain and justify (using evidence from the company report and the code)
Implications
Drawing on academic theory and empirical evidence, critically evaluate whether your company’s approach is effective.
Communication with stakeholders (Culture, purpose and strategy
2. A. Evaluate your company’s approach to ensuring effective leadership as suggested by the UK Code of Corporate Governance. Does the company have a separate CEO-Chair or CEO-Chair Duality? Using academic theory justify the approach of your company. In the implications section, drawing on academic theory and evidence critically evaluate whether the separation of CEO-chair is important to financial performance. (Approximately 200 words)
The answers should be structured as follows:
Board Characteristics
Approach and Justification
Did the company comply with the code? Explain (using evidence from the company report and the code) and justify (using academic theory)
Implications
Drawing on academic theory and evidence critically evaluate whether the separation of CEO-chair is important to firm performance.
Separated Roles of CEO/Chair
Yes/No
2. B. Discuss the extent of your company’s compliance with the requirements for board independence? In the implications section, using academic theory and evidence critically appraise the importance of independence on board performance. (Approximately 200 words)
The answers should be structured as follows:
Board Characteristics
Approach and Justification
Did the company comply with the code? Explain (using evidence from the company report and the code) and justify (using academic theory).
Implications
Using academic theory and empirical evidence critically appraise the importance of board independence on board performance.
Independence
Proportion of independent board members
3. Assess your company’s adherence to the composition, succession, and evaluation principles, by critically assessing the extent of your company’s compliance to board evaluation. In the implications section, drawing on empirical evidence in the academic literature appraise the importance of board evaluation on improving board effectiveness and company financial performance. Review your company’s case based on your analysis. (Approximately 300 words)
The answers should be structured as follows:
Accountability Components
Approach and Justification
Did the company comply with the code? Explain and justify (using evidence from the company report and the code).
Implications
Using empirical evidence in the academic literature appraise the importance of board evaluation on improving board effectiveness and company financial performance. Review your company’s case based on your analysis.
Board Evaluation
How often does the board undertake an evaluation of the board?
Is there an external evaluation? Yes/No
4. Investigate your company’s approach to audit, risk, and internal control by examining its compliance to external auditor rotations. In the implications section, using academic theory and empirical evidence critically discuss the importance of external auditor rotation/independence on company exposure to risk. Drawing on the findings from the academic literature, evaluate the case of your company. (Approximately 300 words)
The answers should be structured as follows:
Accountability Components
Approach and Justification
Did the company comply with the code? Explain and justify (using evidence from the company report and the code).
Implications
Using academic theory and empirical evidence critically discuss the importance of external auditor rotation/independence on company exposure to risk. Drawing on the findings from the academic literature, evaluate the case of your company.
External Auditors
Who are the auditors of your company?
How long have they been the auditors?
How many years is their contract?
5. Detail the structure of remuneration for the CEO for the past two years (either 2020 and 2019 OR 2019 and 2018) in terms of the proportion of total remuneration/pay for each of the following elements: Fixed Pay (includes Salary, benefits & pension); Annual Bonus; Long-erm Incentive Plan (LTIP). Explain the approach to remuneration and using academic theory justify the approach taken by the company. In the implications section, compare and contrast the relationship between remuneration and firm performance with the empirical evidence in the academic literature. Which of the three theories (agency, managerial entrenchment/power, and institutional theory) best explains your company’s approach? (Approximately 400 words)
The answers should be structure as follows:
Remuneration Components
Approach and Justification
Explain the approach to remuneration and using academic theory justify the approach taken by the company.
Implications
Compare and contrast the relationship between remuneration and firm performance with the empirical evidence in the academic literature. Which of the three theories (agency, managerial entrenchment/power, and institutional theory) best explains your company’s approach?
Structure of Remuneration
Most recent year (either 2020 or 2019)
Total Pay – 100%
Fixed Pay – %
Annual Bonus – %
LTIP – %
Previous year (either 2019 or 2018)
Total Pay – 100%
Fixed Pay – %
Annual Bonus – %
LTIP – %
6. Conclusion – Write a conclusion that summarises the extent of your company’s compliance with all the requirements of the UKs Code of Corporate Governance. Drawing on the academic literature assess whether adherence to the code or not is important to the performance of the company. (Approximately 300 words)
Word limit
The maximum word limit for this assessment is 2000 words.
Where the submission exceeds the stipulated word limit by more than 10%, the submission will only be marked up to and including the additional 10%. Anything over this will not be included in the final grade for the assessment item. Abstracts, bibliographies, reference lists, appendices and footnotes are excluded from any word limit requirements
Learning Outcomes
On successful completion of this assessment, you will be able to:
· Level of understanding, analysis, and application to your company (30%)
· Level of justification, evaluation, and appraisal (30%)
· Quality of argument, synthesis, and conclusion (30%)
· Professional and academic quality of written work and accuracy of referencing (10%)
Your grade will depend on the extent to which you meet these learning outcomes in the way relevant for this assessment. Please see the grading rubric on NILE for further details of the criteria against which you will be assessed.
Assessment Criteria
· Level of understanding, analysis, and application to your company (30%)
· Level of justification, evaluation, and appraisal (30%)
· Quality of argument, synthesis, and conclusion (30%)
· Professional and academic quality of written work and accuracy of referencing (10%)
Assessment Support
Specific support sessions for this assessment will be provided by the module team and notified through NILE. You can also access individual support and guidance for your assessments from Library and Learning Services. Visit the Skills Hub to access this support and to discover the online support also available for assessments and academic skills.
Academic Integrity and Misconduct
Unless this is a group assessment, the work you produce must be your own, with work taken from any other source properly referenced and attributed. For the avoidance of doubt this means that it is an infringement of academic integrity and, therefore, academic misconduct to ask someone else to carry out all or some of the work for you, whether paid or unpaid, or to use the work of another student whether current or previously submitted.
For further guidance on what constitutes plagiarism, contract cheating or collusion, or any other infringement of academic integrity, please read the University’s Academic Integrity and Misconduct Policy. Also useful resources to help with understanding academic integrity are available from UNPAC .
N.B. The penalties for academic misconduct are severe and can include failing the assessment, failing the module and expulsion from the university.
Assessment Submission
To submit your work, please go to the ‘Submit your work’ area on the NILE site and use the relevant submission point to upload your report. The deadline for this is 11.59pm (UK local time) on the date of submission. Please note that essays and text-based reports should be submitted as word documents and not PDFs or Mac files.
Written work submitted to TURNITIN will be subject to anti-plagiarism detection software. Turnitin checks student work for possible textual matches against internet available resources and its own proprietary database. Work
When you upload your work correctly to TURNITIN you will receive a receipt which is your record and proof of submission. If your assessment is not submitted to TURNITIN, rather than a receipt, you will see a green banner at the top of the screen that denotes successful submission.
N.B Work emailed directly to your tutor will not be marked.
Late submission of work
For first sits, if an item of assessment is submitted late and an extension has not been granted, the following will apply:
· Within one week of the original deadline – work will be marked and returned with full feedback and awarded a maximum bare pass grade.
· More than one week from original deadline – grade achievable LG (L indicating late).
For resits there are no allowances for work submitted late and it will be treated as a non-submission.
Please see the Assessment and Feedback Policy for full information on the processes related to assessment, grading and feedback, including anonymous grading. You will also find the generic grading criteria for achievement at University Grading Criteria. Also explained there are the meanings of the various G grades at the bottom of the grading scale including LG mentioned above.
Extensions
The University of Northampton’s general policy with regard to extensions is to be supportive of students who have genuine difficulties, but not against pressures of work that could have reasonably been anticipated.
For full details please refer to the Extensions Policy. Extensions are only available for first sits – they are not available for resits.
Mitigating Circumstances
For guidance on Mitigating circumstances please go to Mitigating Circumstances where you will find detailed guidance on the policy as well as guidance and the form for making an application.
Please note, however, that an application to defer an assessment on the grounds of mitigating circumstances should normally be made in advance of the submission deadline or examination date.
Feedback and Grades
These can be accessed through clicking on the Feedback and Grades tab on NILE. Feedback will be provided by a rubric with summary comments.
2
ES1- Marking Rubric
Levels of Achievement
Criteria
No Submission / no evidence
Fail
Pass
Commended
Merit
Distinction
Level of understanding, analysis, and application to your company
(30%)
0 points
Non-Submission
1 to 11 points
Weak to poor understanding and analysis of the codes of corporate governance. Weak to poor understanding of theories of corporate governance. Weak to poor application to your company with regard to the company purpose and communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk, CEO remuneration, and your company’s compliance to the UKs Code of Corporate Governance.
12 to 14 points
Satisfactory understanding and analysis of the codes of corporate governance.
Satisfactory understanding of theories of corporate governance. Satisfactory application to your company with regard to the company purpose and communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk, CEO remuneration, and your company’s compliance to the UKs Code of Corporate Governance.
15 to 17 points
Sound understanding and analysis of the codes of corporate governance. Sound understanding of theories of corporate governance. Sound application to your company with regard to the company purpose and communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk, CEO remuneration, and your company’s compliance to the UKs Code of Corporate Governance.
18 to 20 points
High quality understanding and analysis of the codes of corporate governance. High quality understanding of theories of corporate governance. High quality application to your company with regard to the company purpose and communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk, CEO remuneration, and your company’s compliance to the UKs Code of Corporate Governance.
21 to 30 points
Very high-quality understanding and analysis of the codes of corporate governance. Very high-quality understanding of theories of corporate governance. Very high-quality application to your company with regard to the company purpose and communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk, CEO remuneration, and your company’s compliance to the UKs Code of Corporate Governance.
Level of justification, evaluation, and/or appraisal
(30%)
0 points
Non-Submission
1 to 11 points
Weak to poor level of justification, evaluation, and appraisal. Little to no attempt to justify your company’s approach to the purpose and communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk, CEO remuneration. Little or no evaluation and/or appraisal of the academic theory and evidence on listed companies’ approach to communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk. Little to no evaluation and/or appraisal of your company’s compliance with the UK Code of Corporate Governance
12 to 14 points
Satisfactory level of justification, evaluation, and appraisal. Satisfactory justification of your company’s approach to the purpose and communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk, CEO remuneration. Satisfactory evaluation and/or appraisal of the academic theory and evidence on listed companies’ approach to communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk. Satisfactory evaluation and/or appraisal of your company’s compliance with the UK Code of Corporate Governance
15 to 17 points
Sound level of justification, evaluation, and appraisal. Sound justification of your company’s approach to the purpose and communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk, CEO remuneration. Sound evaluation and/or appraisal of the academic theory and evidence on listed companies’ approach to communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk. Sound evaluation and/or appraisal of your company’s compliance with the UK Code of Corporate Governance
18 to 20 points
High quality level of justification, evaluation, and appraisal. High quality justification of your company’s approach to the purpose and communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk, CEO remuneration. High quality evaluation and/or appraisal of the academic theory and evidence on listed companies’ approach to communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk. High quality evaluation and/or appraisal of your company’s compliance with the UK Code of Corporate Governance.
21 to 30 points
Very high-quality level of justification, evaluation, and appraisal. Very high-quality justification of your company’s approach to the purpose and communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk, CEO remuneration. Very high-quality evaluation and/or appraisal of the academic theory and evidence on listed companies’ approach to communication with stakeholders, effective leadership, board independence, board evaluation, audit and risk. Very high-quality evaluation and/or appraisal of your company’s compliance with the UK Code of Corporate Governance
Quality of argument, synthesis, and conclusion
(30%)
0 points
Non-Submission
1 to 11 points
Weak to poor level of argument with little to no support from academic theory and evidence. Weak to poor synthesis of the material. Weak to poor or no conclusion
12 to 14 points
Satisfactory level of argument with some acceptable support from academic theory and evidence. Satisfactory synthesis of the material. Satisfactory conclusion
15 to 17 points
Sound level of argument with commendable support from academic theory and evidence. Sound synthesis of the material. Sound conclusion
18 to 20 points
High quality level of argument with very good support from academic theory and evidence. High quality synthesis of the material. High quality conclusion
21 to 30 points
Very high-quality level of argument with excellent to outstanding to exceptional support from academic theory and evidence. Very high-quality synthesis of the material. Very high-quality conclusion
Professional and academic quality of written work and accuracy of referencing
(10%)
0 points
Non-Submission
1 to 3 points
Poor quality of academic writing, with many spelling, grammar and other errors demonstrating a lack of professional attention to the work. Poor or no referencing. Fails to apply the Harvard system of referencing.
4 points
Satisfactory quality of academic writing, with some spelling, grammar and other errors demonstrating a satisfactory professional attention to the work. Satisfactory referencing. A satisfactory application of the Harvard system of referencing.
5 points
Sound quality of academic writing, with few spelling, grammar and other errors demonstrating a sound professional attention to the work. Sound referencing. A sound application of the Harvard system of referencing.
6 points
High quality of academic writing, with minor spelling, grammar and other errors demonstrating a high-quality professional attention to the work. High quality referencing. A high-quality application of the Harvard system of referencing.
7 to 10 points
Very high-quality of academic writing, with accurate spelling, grammar and few other errors demonstrating a very high-quality professional attention to the work. Very high-quality referencing. A very high-quality application of the Harvard system of referencing.
0.1_MUL1564-FOUNDATION-Pay-ratios-report.pdf
An analysis of the first disclosures
PAY RATIOS AND
THE FTSE 350
Rachel Kay and Luke Hildyard
High Pay Centre
December 2020
Standard Life Foundation | Pay ratio report December 2020 2
CONTENTS
Acknowledgements 3
Foreword 4
Key findings and recommendations 5
High Pay Centre analysis of 2020 pay ratio disclosures: final report 11
Section 1: Highest and lowest pay ratios 13
Section 2: Pay ratios by industry 18
Section 3: Company characteristics 20
Section 4: Pay for low earners 24
Section 5: The potential to redistribute 29
Section 6: Narrative reporting 36
Conclusions and recommendations 39
Appendix A: Methodology 44
Appendix B: Pay ratio disclosure requirements 45
Standard Life Foundation | Payratios report December 2020 3
This research was funded by the Standard Life Foundation. We are also very grateful to the project
advisory group who provided advice on the research methodology, the findings and initial drafts of the
report. In particular, we would like to thank
• Ruth Bender – Emeritus Professor of Corporate Financial Strategy, Cranfield University
• Duncan Brown – Principal Associate, Institute of Employment Studies and Visiting Professor,
University of Greenwich
• Martin Buttle – Head of Good Work and Vaidehee Sachdev – Senior Research Officer, Share Action
• Caroline Escott – Policy Lead: Investment and Stewardship, Pensions and Lifetime Savings Association
• Deborah Gilshan – Independent Advisor, Stewardship and ESG and Founder, 100 per cent club
• Mubin Haq – Chief Executive, Standard Life Foundation
• Robert Joyce – Deputy Director, Institute for Fiscal Studies
• Alexander Pepper – Professor of Management Practice, London School of Economics
• Tom Powdrill – Head of Stewardship, Pensions Investment and Research Consultants
• Euan Stirling – Global Head of Stewardship and ESG Investment, Aberdeen Standard Investments
• Janet Williamson – Senior Policy Officer for Corporate Governance, Trades Union Congress
• Wanda Wyporska – Executive Director, The Equality Trust
We would also like to thank Steve Glenn, Head of Executive Remuneration Research at E-Reward, and
Dr Aditi Gupta, Senior Lecturer in Accounting and Financial Management at Kings’ Business School,
Kings’ College London, for providing data analysis for this report.
All opinions expressed in the paper (and any errors) are those of the High Pay Centre only.
Acknowledgements
Standard Life Foundation | Payratios report December 2020 4
Extreme income inequality is one of the hallmarks of the UK economy. Out
of 40 countries that comprise membership of the OECD group of leading
economies, the UK is the 9th most unequal.1 Other than the United States
of America, it is only emerging economies such as South Africa, Turkey and
Bulgaria that have a worse record on inequality than the UK amongst the
OECD member states.
It is largely pay for what Thomas Piketty termed the ‘super managers’ – leading executives and business
professionals – that has created the vast gap between those at the top and everybody else. Research
suggests that the average FTSE 100 CEO is now paid around 126 times the average UK worker, compared
to ‘only’ 58 times in 1999.2
Very high levels of inequality have a number of important implications:
• The potential link between higher inequality and greater social problems including higher crime levels;
poorer mental and physical health; and lower social mobility with more entrenched social divisions;
• The impact that pay gaps within companies have on business performance through factors such as
employee engagement and industrial relations;
• The way in which the distribution of pay by employers affects living standards for low- and middle-
earners, and the potential to raise incomes for those who need it most through a more even distribution.
In these respects, the new pay ratio disclosures that have begun to appear in UK-listed companies’ annual
reports from 2019/20 are of great value.
By showing the scale of pay ratios within companies, and eventually how they change over time, this will
enable better, more informed discussion and research into their social and economic impact.
Concrete pay ratio data will also provide stakeholders including investors, trade unions, policymakers and
of course the companies themselves with a means of measuring (and targeting) performance in respect
of pay distribution – hopefully contributing to a better understanding of both the scale and the basis of
prevailing levels of pay inequality.
This report attempts to begin that process, while also being mindful of the fact that this is the first year of
the pay ratio disclosures, and that there remains scope for both the calculation and the communication of
the figures to be improved. As such, our findings should be treated as the beginning, rather than the end
point, of a discussion about pay.
Luke Hildyard
Director, High Pay Centre
Foreword
1 OECD, Income inequality data, 2020 via https://data.oecd.org/inequality/income-inequality.htm
2 CIPD and High Pay Centre, Executive pay in the FTSE 100: 2020 review, 2020 via https://www.cipd.co.uk/knowledge/
strategy/reward/executive-payftse-100-2020
Standard Life Foundation | Payratios report December 2020 5
This executive summary highlights the key findings and recommendations from
research into the first round of FTSE 350 companies ‘pay ratio’ disclosures in
2019/20. More detailed analysis can be found in the main report.
The median CEO/median employee pay ratio across the FTSE 350 is 53:1 and the median CEO/lower
quartile employee ratio is 71:1. These ratios are significantly higher for the FTSE 100, where the median
CEO/median ratio is 73:1 and the median CEO/lower quartile ratio is 109:1.
Highest pay ratios
The companies with the highest CEO/median and CEO/lower quartile employee ratios are shown
in tables 1 and 2. Comparisons between different companies should not be made without fully
understanding their respective business models – for example, differing reliance on indirectly employed
workers who are not included in the pay ratio calculations, can make the pay ratios of two ostensibly
similar companies look very different. Nonetheless, the highest ratios in the sample reveal strikingly wide
pay gaps between CEOs and their colleagues. This should prompt serious debate about the causes and
consequences of such differences.
Table 1: 10 highest CEO/median employee ratios
Company Index Industry CEO/median employee ratio
Ocado 100 Retail 2,605
JD Sports 100 Retail 310
Tesco 100 Retail 305
Watches of Switzerland 250 Retail 262
GVC Holdings 100 Travel & Leisure 229
Morrisons 100 Retail 217
CRH 100 Construction & Materials 207
WH Smith 250 Retail 207
Astra Zeneca 100 Health Care 190
Serco 250 Industrial Goods & Services 190
Key findings and recommendations
Standard Life Foundation | Pay ratio report December 2020 6
Table 2: 10 highest CEO/lower quartile employee ratios
Company Index Industry CEO/lower quartile employee ratio
Ocado 100 Retail 2,820
BP 100 Oil & Gas 543
Tesco 100 Retail 355
JD Sports 100 Retail 348
Watches of Switzerland 250 Retail 317
CRH 100 Construction & Materials 289
Astra Zeneca 100 Health Care 280
GVC Holdings 100 Travel & Leisure 278
Homeserve 100 Retail 278
Experian 100 Industrial Goods & Services 267
Industry analysis
Even when excluding Ocado (an outlier with a CEO/median employee ratio of 2,605:1), the retail industry
has the highest average CEO/median employee ratio of 140:1. The industry with the lowest average CEO/
median employee ratio is financial services, with a ratio of 35:1. Overall, more labour intensive industries
tend to have higher ratios as they employ a larger number of workers on lower wages. The reverse is true
for capital intensive industries.
Figure 1: CEO/median employee pay ratios and
median pay thresholds by industry
0 0
20 10
40 20
60 30
80 40
100
Average CEO/median
employee ratio
Ba
nk
s
Average CEO/median employee ratio Average median pay threshold £000
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M
ate
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Co
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tru
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on
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Co
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um
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Go
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s
Fin
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l S
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es
He
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al
Go
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Se
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Ins
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as
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Average median
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(£000)
50
120 60
140 70
160 80
Standard Life Foundation | Pay ratio report December 2020 7
Trade union influence
The retail industry also provides an interesting case study regarding the influence of trade unions. At
companies in the industry where the pay-setting process involves union consultation and/or full collective
bargaining agreements, lower quartile thresholds did not fall below £18,000 and the average lower quartile
threshold was £18,856, whilst in companies without full collective bargaining coverage, some lower quartile
thresholds were below £15,000 and the average lower quartile threshold was £17,661. This is consistent
with wider research suggesting a link between collective bargaining agreements and higher pay.3
Company characteristics
Net sales, market capitalisation and number of employees (all proxies for the size of the company) all have
a positive relationship with pay ratio size.
Table 3: results of univariate test analysing the relationship between pay ratio
size and net sales, market capitalisation and number of employees
Firm-level economic
determinants
Companies where the CEO/median
employee ratio is greater than or equal
to the mean for the group
Companies where the CEO/median
employee ratio is less than the mean
for the group
Average net sales (£bn) 16.5 5.5
Average market
capitalisation (£bn) 25.8 7.6
Average number of
employees 46,553 19,888
Multivariate regressions also found that the two characteristics which determine pay ratio size were
indebtedness and complexity (where complexity is proxied by market-to-book ratio). It might be argued that
it is to be expected that a CEO in charge of a larger, more complex organization would expect to be paid
more for a more demanding role – equally, it could be said that this makes them more dependent on the
support of colleagues and structures than someone running a smaller, more agile organization.
3 Bryson A and Forth J, The added value of trade unions: New analyses for the TUC of the Workplace Employment
Relations Surveys 2004 and 2011, TUC, 2017
Standard Life Foundation | Pay ratio report December 2020 8
Pay for low earners
The pay ratios also provide insights into pay of the lowest earning employees at some of the UK’s biggest
employers. The 10 companies with the lowest thresholds for pay at the lower quartile of the company’s pay
distribution were as follows:
Figure 2: 10 lowest lower quartile thresholds
Low pay is widespread across the companies in our sample:
• 36 companies – 18% of the sample – pay at least a quarter of their employees less than £20,000 a
year (on an FTE basis).
• Of these, 34 companies pay all lower quartile employees below the annualised equivalent of the
London Living Wage (£19,565), while 11 pay below the annualised equivalent of the Real Living
Wage (£16,926).4
As the pay ratio calculations do not include outsourced workers, who are often low-paid, we estimated the
gap between the CEO and a worker earning the living wage or minimum wage, (depending on whether the
company is living wage accredited). This results in even more extreme gaps between the lowest earners
and the CEO, with several CEOs making 500- or 600-times workers on the minimum or living wage.
Table 4: highest CEO/low-paid worker ratio
Company Index Industry Living/ minimum wage
(£)
CEO/low-paid
worker ratio
Ocado 100 Retail 14,942 3,930
Astra Zeneca 100 Health Care 16,926 847
BP 100 Oil and Gas 16,926 613
Experian 100 Industrial Goods & Services 16,926 608
Royal Dutch Shell 100 Oil and Gas 14,942 585
DunelmFTSE 100
FTSE 250
16,409
William Hill 16,268
Domino’s Pizza 16,264
JD Sports 16,067
Telecom Plus 15,632
Wetherspoons 14,760
Homeserve 14,493
Lower quartile threshold (£)
WHSmith 14,276
Associated British Foods 14,175
Mitchells and Butlers 14,014
4 Calculations based on a 35-hour week at rates of £10.75 (London Living Wage) and £9.30 (Real Living Wage). The real living
wage is a voluntary accreditation set by the Living Wage Foundation, based on their calculation of what is necessary to secure
a decent standard of living. It should not be confused with the statutory minimum wage.
Standard Life Foundation | Pay ratio report December 2020 9
The potential to redistribute
The pay ratios also provide useful insights into the potential to raise incomes and living standards by
reallocating companies’ expenditure on the pay of high earners to those in the middle and at the bottom.
For example, a CEO pay award of £5m (there are 23 in our sample who earn at least this amount) equates
to the equivalent cost of 295 workers earning the 2019/20 UK real living wage for a year. £5 million could
raise the pay of 2,520 minimum wage workers to the real living wage.
On average, a 3% distribution of pay from an earner at the median upper quartile threshold for the
companies in our sample (£59,133) would represent £1,774 per lower quartile employee – a significant
sum of money for those earning below the median lower quartile threshold of (£28,395). Indeed, as those
in the upper quartile earn above the upper quartile threshold, and those in the lower quartile earn below
the lower quartile threshold, these figures understate the typical potential to redistribute and benefit low
income workers.
However, there is enormous variation by company. At the companies with the lowest-paid lower quartile
employees, the upper quartile are also not highly-paid, while at the companies with the highest-earning
upper quartile workers, those in the lower quartile are not low-paid.
Table 5: Companies with the 5 lowest lower quartile thresholds and
5 highest upper quartile thresholds
5 companies with lowest lower
quartile thresholds
Industry Lower quartile
threshold (£)
Upper quartile
threshold (£)
Mitchells and Butlers Travel & Leisure 14,014 15,881
Associated British Foods Consumer Goods 14,175 24,026
WHSmith Retail 14,276 17,034
Homeserve Retail 14,493 32,232
Wetherspoons Travel & Leisure 14,760 27,333
5 companies with highest
upper quartile thresholds
Industry Lower quartile
threshold (£)
Upper quartile
threshold (£)
TP ICAP Financial Services 57,064 230,554
Man Group Financial Services 83,084 227,235
Standard Chartered Banks 83,000 212,000
Tate & Lyle Consumer Goods 46,064 201,522
British American Tobacco Consumer Goods 46,216 183,179
There would be considerable interest in understanding the potential to raise pay for low- and middle-
income workers by redistributing from those at the very top – the people above the top 1% of the UK
earnings distribution, who could afford to give up a significant quantity of their pay and remain well-paid
even in comparison to above-average earners. However, data in quartiles does not provide sufficient
granularity to do this. For the majority of companies, employees at the upper quartile thresholds are not
what most people would consider to be exceptionally rich.
Narrative reporting
Companies are required to provide a narrative accompanying their pay ratio disclosure, however, these
were generally insubstantial. Several companies provided minimal or no narrative. Those that did mostly
failed to engage with the question of what actions they might take on pay distribution going forward, or how
they engaged their workforce in the pay-setting process.
Standard Life Foundation | Pay ratio report December 2020 10
Conclusions and recommendations
It is important to emphasise the value of pay ratio reporting: it can be an important tool for stakeholders,
including workers, to hold companies to account – provided it is not used to make sweeping judgements
or definitive conclusions, but as a starting point for discussions around pay and employment practices.
Indeed, companies themselves can use the process for assessing their corporate culture and the value they
deliver for their stakeholders.
The disclosures provide useful benchmarks for pay levels and pay distribution across companies. The
scale of the inequality and the extent of low pay at some of the UK’s largest employers that they expose
is critically important, and needs to be widely debated. However, there are also some limitations to the
disclosures, chiefly:
• The exclusion of indirectly employed workers potentially distorts the ratios and renders
comparisons more difficult.
• The exclusion of major employers beyond UK-listed companies means the disclosures provide a
limited picture of UK employment practices.
• The lack of information on top earners beyond the CEO makes it harder to assess the potential to
raise pay for low- and middle- earners by re-balancing pay distributions.
We have made recommendations for how the pay ratios disclosures could be improved: these can
be understood both as policy recommendations for when the government next reviews the pay ratio
disclosures, and as changes that stakeholders can encourage companies to make voluntarily:
• Companies should provide more granular information on the earnings of those between the upper
quartile threshold and the CEO.
• Outsourced workers should be included in the pay ratio calculations.
• There should be higher standards and clearer expectations of narrative reporting.
• Companies should directly provide information on pay ratios to their workers.
• Companies should provide data on their number of UK employees.
We also propose accompanying recommendations that would complement the pay ratio disclosures, and
ensure that the information they provide is used to improve low- and middle-income workers’ pay and
working conditions:
• Allow trade union access to workplaces, to inform workers of the benefits of collective bargaining.
• Establish sectoral governance bodies to monitor fair pay.
• Legislate for worker representation on company boards.
• Require companies to introduce all-employee profit sharing or share ownership schemes.
• Amend company law to give the interests of all stakeholders equal importance, rather than elevating
shareholder interests above those of others.
• Make the shareholder vote on directors’ remuneration reports legally binding.
• Require companies to include guidance on potential future pay ratio sizes in their remuneration
policies so that shareholders can vote on this.
• Apply the pay ratio disclosure requirements to all large employers.
Taken together, these measures would boost transparency, governance and accountability to stakeholders
at the UK’s biggest businesses, while strengthening the bargaining power of low- and middle-income
workers, and significantly improving living standards.
Standard Life Foundation | Payratios report December 2020 11
This introductory section explains the background to the pay ratio disclosures
and the parameters for this report. It discusses how the pay ratio disclosures
might be used by different stakeholder groups.
Introduction
This report analyses the first set of pay ratio disclosures made by FTSE 350 companies, in order to identify
what insights the pay ratios provide and how they might be used by stakeholders.
In addition to examining the ratios between the CEO and their median, upper quartile and lower quartile
employees, the analysis reviews data on the lower quartile pay thresholds in order to gain insights into
the earnings of the lowest-paid employees at the UK’s biggest listed companies. We also look at the
pay differences between the upper and lower quartiles (on the basis of pay levels at the 75th and 25th
percentiles).
The report is an updated version of an interim study, published in June 2020, analysing the very first pay
ratio disclosures from 1 January to 30 April 2020.
The interim report identified initial insights from the disclosures. This final report, covering disclosures by
201 companies (over 90% of the FTSE 350 companies required to report their pay ratio, as of November
30 2020) is able to make more concrete observations on what pay ratio reporting tells us about pay,
employment practices and corporate cultures at some of the UK’s largest private sector employers. It also
makes recommendations for how the disclosures could be improved and how they can best be used.
We intend to repeat the analysis in future years, using the pay ratio disclosures to build a data set that
can enhance our understanding of UK corporate pay distribution and its socio-economic impact on an
ongoing basis.
Using the analysis
This is only the first year of pay ratio reporting, and given the variable nature of CEO pay awards, more
years of data will allow us to build a clearer picture of corporate pay practices.
Nonetheless, this analysis gives an initial snapshot of trends in pay ratio sizes, shows how firms are
approaching pay ratio reporting, and provides data that can be used to inform debates about pay and
work. It also identifies the limitations of the disclosures and recommends areas for improvement, with
regard to both the regulations themselves and their application.
High Pay Centre analysis of 2020 pay ratio disclosures:
final report
Standard Life Foundation | Pay ratio report December 2020 12
In particular, we hope that the research will be of some value to a number of stakeholders, including the
following groups:
• The workers themselves, who can potentially benefit from better information about how their
pay levels compare to others within their own company or in other similar organisations.
• Businesses, particularly the remuneration committees that oversee pay-setting processes and
the directors or committees responsible for stakeholder representation in corporate governance
structures as mandated by the 2018 Corporate Governance Code. Businesses can use the
pay ratio data to inform their thinking on how to achieve the fairest balance of pay distribution
across their workforces.
• Investors seeking to understand the employment practices and corporate cultures of the
companies they invest in, and how their spending on pay – a significant cost for any business –
is distributed.
• Trade unions, who can use information on pay levels to support the case for fairer wages for the
workers they represent.
• Policymakers interested in the initial impact of the pay ratio disclosures, and their insights
and limitations. Following the outbreak of COVID-19 and the consequent reliance of many
businesses on government support, details of the distribution of companies’ pay costs may also
be relevant to decisions regarding support packages.
• Academic and commercial researchers interested in prevailing corporate pay practices, who
can use the data to examine how pay distribution relates to issues such as industry type,
business performance or societal impact.
We have engaged with businesses, investors, trade unions and policymakers in order to discuss how
they can make the best use of the data and the insights it provides. We hope the research will assist
these stakeholders in their work shaping the pay and employment practices of the UK’s largest private
sector employers.
Standard Life Foundation | Payratios report December 2020 13
01
In this section we show the wide range of pay ratio sizes across the companies
that have disclosed.
Median pay ratios
The ratio sizes at individual companies vary widely from the median. The pay ratio disclosures mean that
we can identify the widest pay differentials across UK-listed companies. Tables 1-4 detail the companies
with the highest and lowest CEO/median employee and CEO/lower quartile employee pay ratios. This
updated list shows even wider pay gaps than those presented in the interim report.
Table 1: 10 highest CEO/median employee ratios
Company Index Industry CEO/median employee ratio
Ocado 100 Retail 2,605
JD Sports 100 Retail 310
Tesco 100 Retail 305
Watches of Switzerland 250 Retail 262
GVC Holdings 100 Travel & Leisure 229
Morrisons 100 Retail 217
CRH 100 Construction & Materials 207
WH Smith 250 Retail 207
Astra Zeneca 100 Health Care 190
Serco 250 Industrial Goods & Services 190
Ocado is a huge outlier here: its median ratio of 2,605: 1 is due to the unusually large pay package of
over £58 million handed to Ocado’s CEO. This was a one-off pay award: a growth incentive plan (GIP)
worth £54 million constituted the overwhelming majority of the pay package. In the previous year, the
Ocado CEO was paid £4 million.
Highest and lowest pay ratios
Standard Life Foundation | Pay ratio report December 2020 14
Table 2: 10 highest CEO/lower quartile employee ratios
Company Index Industry CEO/lower quartile employee ratio
Ocado 100 Retail 2,820
BP 100 Oil & Gas 543
Tesco 100 Retail 355
JD Sports 100 Retail 348
Watches of Switzerland 250 Retail 317
CRH 100 Construction & Materials 289
Astra Zeneca 100 Health Care 280
GVC Holdings 100 Travel & Leisure 278
Homeserve 100 Retail 278
Experian 100 Industrial Goods & Services 267
Tables 1 and 2 demonstrate the importance of industry in influencing pay ratio size: the retail industry
dominates the companies with the highest ratios. Retail companies employ more low-paid staff than
most other industries. There are also several large retailers in the tables whose size is potentially a
significant factor driving their high CEO pay.
Table 3: 10 lowest CEO/median employee ratios
Company Index Industry CEO/median employee ratio
Sanne Group 250 Financial Services 8
XP Power 250 Industrial Goods & Services 10
Hiscox 250 Insurance 11
PZ Cussons 250 Consumer Goods 13
Petrofac 250 Oil & Gas 14
Integrafin 250 Financial Services 15
Kainos 250 Technology 15
Victrex 250 Basic Materials 16
Renishaw 250 Industrial Goods & Services 17
CMC 250 Financial Services 17
Comparing tables 1 and 3 shows the huge variation in median pay ratio sizes across the disclosures, with
the highest ratios being 200-300: 1 and the lowest being 10-20: 1.
Standard Life Foundation | Pay ratio report December 2020 15
Table 4: 10 lowest CEO/lower quartile employee ratios
Company Index Industry CEO/lower quartile employee ratio
Sanne Group 250 Financial Services 13
XP Power 250 Industrial Goods & Services 16
Victrex 250 Basic Materials 18
Integrafin 250 Financial Services 18
Hiscox 250 Insurance 19
PZ Cussons 250 Consumer Goods 19
Petrofac 250 Oil & Gas 20
Renishaw 250 Industrial Goods & Services 22
Kainos 250 Technology 22
Persimmon 100 Consumer Goods 23
As noted in the interim report, these tables demonstrate the importance of company size in influencing
pay gaps: those with higher ratios are mainly from the FTSE 100 index, whilst most of those with the
lowest ratios are FTSE 250 companies.
Potential future pay ratio sizes
It is also possible to estimate pay ratios for the coming year, using statements about expected executive
remuneration in companies’ annual reports.
The reports indicate the level of pay the CEO will receive if they meet (but do not exceed) their targets:
this can be used to calculate the company’s pay ratio ‘target’ value for the next financial year, using the
workforce pay levels recorded in the pay ratio disclosures for the current financial year as the comparator
with the CEO’s expected pay.
Analysis of these statements suggests that the ratios disclosed in 2021 will not significantly differ from
those in 2020, and that the industry trends we have seen so far will remain consistent, without significant
pay increases for the workforce.
The analysis found that for the FTSE 350, the median CEO/median employee pay ratio target value
is 55:1, slightly higher than the median CEO/median employee pay ratio for the 53:1 FTSE 350 this
year. The industry trends we identify in section 2 are also maintained in the pay ratio target values. For
example, in the retail sector, the potential average pay ratio target value for next year remained high at
114:1, whilst the potential average pay ratio target value for financial services remained low at 37:1.
It will be interesting to compare the actual pay ratios reported in 2021 to these projections. The impact
of the Covid-19 pandemic may mean that CEO performance targets are not met and that pay awards
are lower. Several CEOs …