Company boards should focus on explaining how they foster innovation, improve productivity and develop a positive employment culture over huge pay packets for executives, said the Pensions and Lifetime Savings Association.
The national association for retirement plans in the U.K. made the warning in a news release on so-called Fat Cat Thursday — since calculations by think-tank The High Pay Centre and the Chartered Institute of Personnel and Development show in just three working days, FTSE 100 CEOs have earned more money than the typical U.K. full-time worker's annual salary.
As long-term investors in the U.K. economy, representing more than 60% of all institutional investment in the U.K. at £2.2 trillion ($2.9 trillion), pension funds are affected by the governance and pay culture of the companies in which they invest, said the PLSA.
"As long-term investors, pension funds think that boards should be more skeptical about the need for vast executive pay awards and focus on explaining how they are fostering innovation, improving productivity and developing a positive employment culture throughout their organizations," said Luke Hildyard, stewardship and corporate governance policy lead at the PLSA, in the release. "Huge pay differences between executives and the wider workforce symbolize how too many companies fail to understand or appreciate the value of their workers."
Mr. Hildyard said investors use information about employment models and working practices of their investee companies — including the pay gap between top executives and the rest of the workforce — "as indicators of the corporate culture."
The association's Hidden Talent research, published in November in association with Lancaster University Management School, found that only 7% of FTSE 100 annual reports show the ratio between CEO pay and the wider workforce.