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Fair Reward Framework launches tool to reframe the debate on executive pay

First-of-its kind, asset-owner-led and free-to-access tool launched to provide comparable data on how top companies pay their leaders, alongside key metrics putting the proportionality of pay practices into context.

12 September 2024

London, 12th September.  UK asset owners have partnered with civil society to create a new free-to-access online tool to help investors, as well as other stakeholders such as corporates, trade unions, and media, understand how leading companies are paying their top leaders within the wider context of their business operations.

The Fair Reward Framework (FRF) is the result of a collaboration over the past two years between a group of investors including the Church of England Pensions Board, Brunel Pension Partnership, People’s Partnership and Scottish Widows, with the High Pay Centre – an independent think tank focused on the causes and consequences of economic inequality.

At launch of the pilot, assessments are available for 65 of the FTSE100 companies – with the full FTSE100 to have been published by early 2025. Companies’ annual corporate pay policies and practices are assessed through a 30-point framework comprising indicators including CEO pay awards, pay gaps and ratios, pay scrutiny processes such as worker consultation, the extent of trade union coverage and the results of recent shareholder votes on pay at company AGMs. Pilot-year data has been compiled by the FRF Secretariat in a process that is coordinated by the High Pay Centre with input from data partner Minerva Analytics. Company assessments will be updated on an ongoing basis following annual reporting cycles, with companies having the opportunity to comment on their draft assessment ahead of its publication.

Some of the key trends observed among the pilot-year universe of the nearly two-thirds of FTSE100 companies that have been assessed by the FRF to date include:

The Fair Reward Framework has been instigated by asset owners as a public good, mindful of the resource constraints that can confront stakeholders, including investors, due to the challenges associated with analysing the annual reports and other sources that are captured within this new assessment tool. The Framework is unique in that it synthesises a diverse set of indicators into one location that creates an efficient basis for users to draw their own insights and conclusions, which can feed into dialogue with and within companies as they develop and implement their pay policies.

This tool is intended to inform investors’ stewardship activities that will take place throughout the financial year, including how they choose to engage with companies and vote at AGMs. Pension funds can use the assessments to escalate their interests via their fund managers. As well as its direct uses for investors, it also has the potential to support the work of civil society groups, trade unions or the media by compiling comparable accessible data on pay practices at leading companies, as well as providing insights for Remuneration Committees, People and Human Resources professionals within companies. 

Clare Richards, Director of Social Factors at the Church of England Pensions Board: “We need to reset the debate on corporate pay to be based upon a broader understanding of a company’s approach across the whole firm. As a fund we will be using insights from the Fair Reward Framework to inform our voting decisions at company AGMs, as well as engagement with company remuneration committees. Fairness and proportionality, as well as monitoring factors such as consultation with the workforce and due consideration to shareholder dissent, are at the heart of this assessment framework. Future feedback from FRF users and assessed companies will continue to inform the tool’s further development.”

Vaishnavi Ravishankar Head of Stewardship at Brunel Pension Partnership: “Amid all the debate regarding the importance of remuneration packages to attract, motivate and retain exceptional executives, the Fair Reward Framework anchors analysis of top pay packages within a holistic view of how a company’s success is shared across a range of stakeholders. Accomplished senior executives are undoubtedly central to setting and delivering on an impactful business strategy, but just as important is a sensitivity to how other actors within the corporate ecosystem are rewarded for their inputs to the company’s wealth creation.” 

Shipra Gupta, Responsible Investment lead at Scottish Widows: “The asset owners who have been advising the development of this tool have committed significant resource to the Fair Reward Framework over the past year and more, taking into account the responses to the consultation conducted last year and company feedback on their draft assessments. We believe this pilot project has the potential to really help inform discussions on high and low pay within the companies in which we invest, and which impact on the day-to-day lives of our beneficiaries and clients through their own employment arrangements.” 

Luke Hildyard, Director of the High Pay Centre: “Investors and other stakeholders have become increasingly concerned by calls for higher executive pay that ignore the consequences of economic inequality, and fail to situate the contribution of Chief Executives to business success within the context of the many other factors that drive performance. In particular, the efforts of the wider workforce and the wider economic climate. The Fair Reward Framework has been established to assess not just pay outcomes but whether or not the processes that deliver those outcomes reflect participatory principles that can help build stakeholder confidence that pay awards at all levels are fair and proportionate. Ultimately, we want to achieve a more democratic, inclusive business culture leading to an economy that works for everyone.”

Leanne Clements, Head of Responsible Investment at People’s Partnership: “The Fair Reward Framework enables investors and a variety of stakeholders to cut through the mass of corporate reports, which embeds necessary efficiencies into stewardship decision making. As a consequence, this will help drive more informed discussions about fair pay, and allow the investor the flexibility to pick and choose which indicators are most important to them.” 

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The Fair Reward Framework (FRF: www.fairreward.org) has been established in response to what can often be fractious debates about who and what contributes to the wealth generated by large companies, and how the benefits of this are shared. The Framework has been developed in partnership between responsible investors and the High Pay Centre think tank, which acts as the FRF Secretariat. Asset owners involved in shaping the pilot year include Brunel Pension Partnership, the Church of England Pensions Board, Friends Provident Foundation, Local Pensions Partnership Investments, Nest, People’s Partnership, Railpen and Scottish Widows. The assessments also benefit from input provided by data partner Minerva Analytics (www.manifest.co.uk) as well as pre-publication feedback from companies who respond to the opportunity to comment on the data shared in their draft assessment. 

The assessment for each individual company is available online, where interested users can view performance against the indicators in a dashboard format, both at individual company level and within a comparative table. The ability to compare assessments within the same sector and with reference to financial performance is an important feature given these are key inputs to how pay packets are formulated.

A public consultation on the rationale for the project and the draft indicators comprising the framework received responses in winter 2023 from investment industry participants, businesses, academics and civil society groups. Feedback from interested stakeholders has been invaluable in the development of the Fair Reward Framework to this point, and there is opportunity for this input to continue via the Framework’s website via a rolling survey regarding the data’s construction, presentation, usability, and suggestions for further development. 

During this initial pilot, the assessments focus on data from the two most recently reported financial years for FTSE 100 companies, while reviewing the value and usability of the different indicators for applicability and usability. Further expansion to a wider range of companies including those from other markets is anticipated in the future. The pilot year is launching with assessments available for 65 FTSE companies covering the current and previous financial years, with more to follow on a rolling cycle of publication to complete coverage of the FTSE100. Interested parties can register to receive updates on new assessments as they become available: www.fairreward.org

Once all companies in scope have been assessed, this initial launch of the Framework will be complemented by a pilot-year findings paper, which will further help to synthesise some of the key trends within the UK’s largest companies and build for the next round of assessments in the coming year.

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