Time For A Cap On CEO Pay?

The Economist recently reported that the UK Government has proposed four measures that have made publicly-held companies see red. First, remuneration committees set up by companies will be required to explicitly keep worker's salaries in mind while finalising salaries of top executives. Second, companies will have to create a position for a Director representing workers' interests or set up an advisory council staffed with workers. Third, companies will be required to regularly publish the ratio of the compensation of top executives to that of the average workers. Finally, if more than twenty percent of the shareholders oppose any resolution aimed at fixing the salary of the top executive, say during an Annual General Meeting, the concerned company's name will be entered in a public register so that it can be 'named and shamed.'

- Gautam Brahma

While the range of measures looks sweeping, there are elements there which are already in place in some other countries. For instance, starting 2017, the Dodd-Frank Act in the US requires all listed companies to disclose the ratio of the CEO pay to that of the average worker. Also, agencies outside government control are also pressing for action on some of these issues. Black Rock, the biggest investment management organisation in the world with around US$ 5.1 trillion worth of assets, has asked the companies that it has invested in to not only disclose pay ratios, but also declare a cap on them. In addition to organisations which can exert direct influence, there are a number of non-profit organisations that collect and disseminate information on the subject as part of their advocacy for more equitable pay ratios. An example to this is the Uk based High Pay Centre. In India, several business leaders, most notably N.R. Narayana Murthy, the founder of Infosys, have occasionally expressed support for capping the ratio of CEO-to Worker pay.