Companies should be forced to publish details of the pay gap between top executives and their average employee as part of a plan to tackle excessive boardroom remuneration.
The independent High Pay Commission, which is due to publish its report tomorrow, is expected to recommend a number of measures to increase transparency and reduce incentives for companies excessively to reward senior management. Sources close to the commission said these are likely to include proposals to simplify pay structures so total reward packages can't be disguised from shareholders, and also to put employees on company remuneration committees. The report will be welcomed by the Labour leader Ed Miliband, and is also likely to feed in to the Government's own policy on executive pay.
In September, the Business Department published a consultation paper which suggested giving shareholders additional information about how executive pay related to that of the rest of the workforce. It also proposed that companies should have to provide "fuller information on the relationship between pay and company performance".
Government sources privately admit they have been slow to respond to public anger about excessive executive pay in the face of wage freezes for many employees and public-sector spending cuts. They are concerned that Labour's attack on irresponsibility in the boardroom has resonated with voters and believe they need to unveil tough pay measures themselves to avoid being perceived as "on the side of the rich".
Research for the High Pay Commission has found that the average annual bonus for a director in a FTSE 100 firm has increased by 187 per cent in the past decade despite big falls in share prices. Senior executives received a bonus worth 48 per cent of salary in 2002 but last year, for the same level of performance, it had jumped to 90 per cent.
At the same time, salaries have also increased by 63 per cent while the average value of long-term incentive plans shot up by 700 per cent in the last decade.
Even state-owned banks have not been immune. Last year, directors' average total earnings were just under £4m compared with £1.7m in 2000.
In an interview with The Independent, Rachel Reeves, Labour's shadow Chief Secretary to the Treasury, said it was clear that such bonuses were unacceptable. "Bank bonuses last year were around £7bn. This year RBS is talking about bonuses of around £500m – and in general executive pay is up 49 per cent in a year. That is at a time when the value of FTSE 100 companies is falling, the value of bank shares are falling, and average earnings are going up by about 2 per cent a year if you're lucky.
"That can't be right – because it's not rewarding success. Most people don't expect something for nothing. They just don't think it's fair and they're right."
The High Pay Commission report is likely to suggest there is no evidence that executive pay has to increase at such a high rate to stop executives going abroad. Instead it will argue that such pay distorts the market by taking away talent from less well-remunerated but equally important parts of the economy.
How much? Britain's best paid bosses
1. Mick Davis, chief executive, Xstrata.
Mining giant Xstrata plc employs about 77,000 people worldwide. In a statement it said "it does not consider a ratio comparison between executive directors and non-Board employees to be a useful way of assessing the fairness and balance of Xstrata's remuneration practices".
Total pay 2010-11: £18,426,105
2. Bert Becht, chief executive, Reckitt Benckiser
Left-wing think-tank Compass made Becht, the man behind Cillit Bang, the FTSE's highest-paid chief executive in 2008 with pay of about £37m. The company did not respond in time to a request for further information.
Total earnings 2010-11: £17,879,000
3. Michael Spencer, chief executive, ICap
Icap, a brokerage company, has just reported "flat" revenue of £867m in the six months to September. Icap's biggest foreign operation, in Brazil, remained loss-making but is set to break even next year after the dismissal of 54 of 250 staff last month. The company did not respond in time to a request for further information.
Total earnings 2010-11: £13,419,619:
4. Tom Albanese, chief executive, Rio Tinto
The mining giant Rio Tinto employs about 77,000 people worldwide and has just bid £404m for the Canadian uranium producer Hathor Exploration. It said it did not have a breakdown for average earnings within the company.
Total earnings 2010-11: £11,623,162