Whole Company Pay Policy

Jim Shannon Excerpts

Monday 16th July 2018 Commons Chamber

[Siobhain McDonagh (Mitcham and Morden) (Lab)]

I start by placing on the record the fact that as of last month I am the owner of a single share in Sainsbury’s. It was my golden ticket to attending its annual general meeting earlier this week—but more about that parallel universe experience later in my speech.

First, I turn to fat cat Thursday. By lunchtime on Thursday 4 January, the top chief executives in the UK had earned more than their average employees would over the course of the entire year. The chief executives of FTSE 100 companies earn an eye-watering £898 per hour, which results in astronomical figures more like telephone numbers than salaries. I have no qualms about those at the top being paid well. I am not calling for a salary cap or a widespread cut to chief executives’ pay. My call is far simpler: for consistency, parity and fairness, for the importance of the contribution of those at the bottom being recognised in tandem with the contribution of those at the top. Put simply, I am calling for organisations to determine the pay and reward schemes of all their employees in one whole company pay policy.

I would like to discuss the common themes of pay ratios, remuneration committees and the living wage—the most wonderful of ideas that is disappointingly littered with loopholes. I would also like to bring to the attention of the House and the Minister an organisation that, in my opinion, epitomises all that is wrong when a company does not have a whole company pay policy. But let us start with pay ratios.

In 2002, the pay of a FTSE 100 CEO was an extortionate 79 times that of their average employee. Fast forward 16 years to 2018, and it has sky rocketed to 150 times. Let me put that into perspective. These are chief executives who are paid an estimated 132 times more than a police officer, 140 times more than a teacher, 165 times more than a nurse, and an astronomical 312 times more than a care worker. I am in no position to prescribe the highest acceptable pay ratio, but there can surely be no doubt in anyone‘s mind that those ratios are unacceptable, unjust and unfair.

Of course, there have been some developments in public policy. From 1 July 2019, companies with more than 250 employees will be obliged to reveal and justify their pay ratios. That can only be a good thing, because it will directly pressure the companies with the most extreme pay ratios to explain and to change them.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Lady for raising such an important issue, at a very late hour. Does she agree that, while raising pay scales sounds good, the fact that people are no longer paid for breaks, and the fact that other bonus schemes no longer operate, means less in the pockets of workers? Does she agree that such contracts should no longer be forced on any existing staff, at Sainsbury’s or, indeed, anywhere else?

[Siobhain McDonagh]

I completely agree. The downside of the living wage is that companies have often sought to recoup some of their funds by reducing the conditions of long-standing members of staff.

Can the Minister explain how the Government intend to determine correctly the pay ratios of companies that outsource their low-paid roles to look more equal than they actually are and what mechanisms the Government intend to introduce to ensure that such extreme ratios do not occur in the first place? May I suggest that he note the example of Sweden—which, incidentally, is ranked one of the happiest countries in the world— where companies with big pay gaps face fines if they fail to close them?

It is not just extortionate salaries that generate these unjust pay ratios, but extraordinary incentive schemes, often reserved for those who sit at the very top of organisations. The Companies Act 2006 made it clear that non-executive board members were responsible for all stakeholders, rather than just for shareholders, and that, of course, includes all staff. However, it is still commonplace for many organisations to fail to recognise that company performance is based on the contribution of all staff, not just those at the very top. I have no problem with the retention of incentive pay for executives, but such incentive schemes should be available to all staff on the same terms. Why should any organisation have a rule for some employees that is not a rule for all?

In December 2017, the Financial Reporting Council produced its proposed revisions of the UK corporate governance code, requiring remuneration committees to

“oversee remuneration and workforce policies and practices, taking these into account when setting the policy for director remuneration.”

That seems to me to be a common-sense way of providing sensible alignment between workforce and executive pay. It is a straightforward, practical, whole company pay policy.

The need for such a policy becomes all the clearer when we consider exploitative “pay between assignment” contracts. The theory behind such contracts is a guarantee of a basic level of pay when an agency worker is between assignments and thus out of work, but, in reality, staff are often kept on the contracts even when they have been working in the same job for years without such a gap “between assignments”. Let us take, for example, an Argos distribution centre where agency staff earn £7.50 an hour, while core staff can earn up to £11.86 per hour—63% more than their agency counterparts—despite performing exactly the same role with the same responsibilities and despite having worked at the organisation for the same length of time. Repealing these contracts has been continuously recommended by parliamentary Committees and even the Taylor report. I understand that the Government are currently deciding whether to subject these contracts to greater enforcement, but I completely agree with the Communication Workers Union that the need instead is for these contracts to be abolished once and for all.

Then there is the issue of the national living wage, referred to by the hon. Member for Strangford (Jim Shannon). In theory it is an excellent idea, but in practice it is a deceptive tool used by some of the biggest organisations to cut terms, conditions and salaries. When it was introduced, former Chancellor George Osborne declared that Britain would get a pay rise. The infuriating reality is that a huge number of high-profile organisations have instead used its introduction to save funds by negatively impacting their most long-standing staff—their basic salary goes up, but to the detriment of the rest of their working conditions. These organisations should be named and shamed: I am referring to the likes of Marks & Spencer, B&Q, Zizzi, Ginsters, Le Pain Quotidien, Caffè Nero and countless others that have sought legislative loopholes against the spirit of the law.

Put simply, there should be more fairness. If someone is promised a pay rise, they should receive a pay rise. Organisations can dress it up however they like, but we, as politicians of all parties, need to call it out. That is exactly what I am doing today.

I have called this debate because I believe I have found an organisation that epitomises all the problems I have described so far, and more. Since 1869, Sainsbury’s has been a pillar of the great British high street. Over 148 years, it has established a reputation as a leading retailer that looks after, and out for, its colleagues and customers. But the organisation’s lack of a whole company pay policy has led to the most disgraceful discrepancies, whereby new contracts will see thousands of shop-floor staff have their salaries slashed while senior staff take home bonuses worth hundreds of thousands of pounds. If shop-floor staff do not sign these unscrupulous new contracts, they will be forced to resign. Here is the reality: 9,000 loyal and long-standing Sainsbury’s staff will see their wages fall by up to £3,000 per year by 2020. They will lose their paid breaks; their Sunday premium pay will be removed; the nightshift will be shortened; and their bonus scheme will go.

Some might argue that this is an unavoidable cost-cutting exercise for a key player in the struggling retail sector. Sainsbury’s itself argues that it is an exercise in fairness, ensuring that all colleagues doing the same role are paid the same. But I would argue that this is an organisation crying out for a whole company pay policy owing to those at the top being treated independently from those at the bottom. Either that, or I have misunderstood the definition of fairness, because while Sainsbury’s has scrapped the bonus scheme for its shop-floor staff, it has, astonishingly, awarded an eye-watering bonus of £427,000 to CEO Mike Coupe as part of his £3.4 million pay packet. No wonder he sings “We’re in the money.”

But this is no laughing matter. Many of these 9,000 staff have given decades of dedication to this organisation and tell me that they simply cannot afford to continue working there. While their salaries crumble, their bills, their mortgages and their rent are all still the same at the end of each month. I wonder if Sainsbury’s remuneration committee gave even a moment’s thought to these staff when they signed off their executive bonuses. Losing up to £3,000 per year might not seem like much to Mr Coupe when his pay packet equates to his taking home over three times that amount every single day, but for the thousands of staff losing out and their families every penny really does count.

I have done all I possibly can to raise the case of these staff with the Sainsbury’s board, which I expected, at the very least, to show some regret at the despair it is causing. Mr Deputy Speaker, I will let you be the judge of how regretful they are. Take the meeting I had with Rebecca Reilly, group head of communications, and Simon Roberts, retail and operations director, where I was astonished to hear the most long-standing colleagues who are losing thousands of pounds a year described as “anomalies”. Or take chief executive officer Mike Coupe, who, after his recent bruising session with the Business, Energy and Industrial Strategy Committee, refused to speak to me and raced away down the Portcullis House corridor. Or take the chaotic scenes at Sainsbury’s annual general meeting where, I am bewildered to report, my every move was followed by two senior Sainsbury’s staff.

After the meeting, I decided to use the opportunity to speak directly to the board members. This was their chance to justify their decision to me in person. Can you imagine how furious I was to see them hurried out of the room as I approached, surrounded by colleagues acting like bodyguards? I do not think I am scary, and I certainly do not think I am significant, but Sainsbury’s shop floor staff are significant and Sainsbury’s should be absolutely ashamed of the disgraceful disloyalty that they are showing these staff. Take Michelle, who has worked at Sainsbury’s for more than 20 years and stands to lose over £1,000 a year. She says that she has always loved her job, worked with amazing colleagues and been a proud and loyal employee for a good employer. That is why she found it so hard to speak out. Her petition on change.org has now been signed by 125,000 colleagues and customers from across the country.

Or take Mr and Mr Wilson, who have given over three decades of service to Sainsbury’s between them and yet anticipate that they will lose almost £6,000 a year as a family. Or, finally, take Mrs Taylor, who works in one of the 150 branches of Argos that are now located inside Sainsbury’s stores. Once the new contracts are introduced, Mrs Taylor can expect her hourly pay to be £1.20 less than that of her Sainsbury’s colleagues, despite working in the same store. That is what makes Sainsbury’s insistence that this is an operation in fairness so much less believable.

Could the need for a whole company pay policy be any clearer? What is needed is a policy where the pay for all staff is decided collectively at one point in time by one committee in the organisation. The consultation on these new contracts at Sainsbury’s is coming to a close. Hundreds of MPs have signed letters of support, and thousands upon thousands of colleagues and customers have spoken out. Even the Prime Minister has expressed concern. Perhaps the only hope left for these loyal staff members is a strong statement of support from the Minister this evening.

After a hard day’s work, the very least that an employee deserves is to take home a fair wage that is proportionate to that of their colleagues. Without a whole company pay policy, organisations such as Sainsbury’s can justify treating each level of their staff hierarchy independently and rewarding the minority at the top at the expense of those at the bottom. The damaging decomposition of workers’ rights under this Government has been widely felt. The enforcement of whole company pay policies would be the first step back to a country where hard-working employees can expect to receive a fair deal at work.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Richard Harrington)]

I congratulate the hon. Member for Mitcham and Morden (Siobhain McDonagh) on securing this evening’s debate. This is an important subject, and I commend her passion and her extensive campaigning on behalf of lower-paid workers in our economy. However, I know that she wants more than to be commended by me; she wants answers to her questions. I shall do my best to provide them. I recognise, and sympathise with, her view that executive pay in this country too often seems to exist in a bubble that is disconnected from the pay and experiences of ordinary working people.

I accept the hon. Lady’s numbers. We saw a staggering quadrupling in the average pay of FTSE 100 chief executive officers from the late 1990s to 2011 from just under £1 million a year to more than £4 million. I think that this has been imported from America, where the differences are even larger. Executive pay levels have largely stabilised since then, but shareholders and the wider society have increasingly questioned how such dramatic levels of reward can be justified, both in terms of individual performance and in relation to a company’s pay policy as a whole. The Government share that concern. We are not against CEOs being well paid for doing what is certainly a hugely demanding an important job. We accept that they have a lot of responsibility. For example, if part-time workers are included, Sainsbury’s has 180,000 people, and any one person who is responsible for 180,000 people certainly deserves rewarding well. I do not think that anyone would dispute that.

[Jim Shannon]

The point that the hon. Lady made with passion is that workers who have given effort, commitment and loyalty to a firm should be rewarded. The whole workforce should be rewarded, not just one person.

[Richard Harrington]

I absolutely agree, but pay is earned for several reasons. Hard work is definitely one of them. I am not comparing ourselves, but we are all here at 11.40 pm, so no one could say that we are not working hard. The dispute would come from the second reason for pay, which is how well someone is working and the their responsibilities. I would not ask the hon. Gentleman to intervene to say how well he thinks I am doing, but I certainly know that he and the hon. Member for Mitcham and Morden do a good job. I am not making light of the situation; I mean that reward is partly based on how well someone is doing and partly on how hard they work, but part of it is about responsibility. We would all agree that chief executives have a lot of responsibility, and they should not have job security because they are putting themselves on the line for workers, shareholders, banks or whomever it might be. This is a question of extent and of how much reward is performance related and how much of it is a basic salary. I hope that the hon. Member for Mitcham and Morden and the hon. Member for Strangford (Jim Shannon) do not think that I am trying to make light of this, because there is a significant issue here.

We may disagree on this, but I think the answer lies with transparency and accountability in how executive pay is set and in how it fits with wider employee pay and incentives. The Government have introduced major reforms on executive pay, and the first package in 2013 and the second package approved by Parliament just last week are important. The 2013 reforms compelled quoted companies to disclose each year the total pay and benefits of their CEOs and directors and to explain how that relates to company and individual performance. For the first time—this is important—we gave shareholders a legally binding vote on a company’s executive pay policy, with which all payments to directors must comply. Taken together, the two reforms have forced companies to be much more rigorous and transparent in their approach to executive pay.

However, more needed to be done, in particular to increase transparency and accountability in how pay at the top relates to pay and reward across the rest of the company. It is vital that companies demonstrate cohesion and a comprehensible line of sight between executive pay and the pay of other employees. They are all part of the company, and part of its success, and a confident organisation should be willing and able to explain how its approach to pay is consistent across all its employees. That is why the Government are now implementing major new statutory and code-based reform measures on executive pay as part of a wider package of corporate governance reform.

The headline reform measure—this is directly relevant to the hon. Lady’s speech—is to require all quoted companies to disclose and explain the ratio of their CEO’s pay to both the median average and the quartile pay of their UK employees. The pay ratio statement must include an explanation of

“whether, and if so why, the company believes the median pay ratio for the relevant financial year is consistent with the pay, reward and progression policies for the company’s UK employees taken as a whole.”

That will allow shareholders, employees and other interested parties to see how pay in the boardroom relates to wider employee pay throughout the company and, importantly, whether and how the directors of the company believe the differentials are justified. This is not just about employees, important though they are, because shareholders have strongly backed the introduction of pay ratio reporting and will be watching closely both the figures and the explanations, which they have made clear must be meaningful and relevant.

UK shareholders are increasingly vocal and assertive in holding companies to account on executive pay and other issues, which the Government support. The Government requested the Investment Association to establish the world’s first public register of shareholder dissent, so that there is a publicly monitored record of companies that receive more than 20% votes against executive pay packages. Halfway through the first year, there have been 140 significant shareholder rebellions on pay and other matters—more than the total for the whole of last year.

The Government have asked the Financial Reporting Council to consult on a number of new executive pay provisions in the UK corporate governance code, including a requirement for remuneration committees to explain what engagement with the wider workforce has taken place on how executive pay aligns with wider company policy. I am pleased to say that this new measure forms part of the revised corporate governance code published by the FRC earlier today—this is very topical—as part of a wider package of corporate governance reforms that require companies to put in place one or more of either a director appointed from the workforce, a formal workforce advisory panel or a designated non-executive director. It is complicated, but we are making developments. Companies will have to report on how they have had regard to the interests of employees. The statutory instrument was approved by Parliament last week and requires large companies to report each year on how they have had regard to the interests of their employees and on how it has influenced the decision making of directors.

All these measures will be in place from the start of January 2019, and I take the opportunity to thank everyone in this House, particularly the Business, Energy and Industrial Strategy Committee and the all-party parliamentary group on corporate governance, for their constructive contributions to this agenda over the past two years.

Before I finish, I will address some of the questions raised by the hon. Member for Mitcham and Morden.