Schemes have been urged to take action after research shows FTSE 100 chief executive officers (CEOs) earn more in three days than the average worker earns annually.
The High Pay Centre and the Chartered Institute of Personnel and Development (CIPD) research found these bosses are paid a median average of £3.45m a year, which works out at 120 times the £28,758 earned by full-time UK workers on average. This has led campaigners to name today ‘Fat Cat Thursday'.
According to the Pension and Lifetime Savings Association (PLSA), pension funds are long-term investors in the economy, representing more than 60% of all UK institutional investment (£2.2trn). They are affected by the governance and pay culture of the companies they invest in, the trade body said.
ShareAction chief executive officer Catherine Howarth said what many working people do not know is that their pension funds "hold shares in these companies and have been voting in support of these CEO pay packets."
She added ‘Fat Cat Thursday' is a fantastic wheeze to highlight the madness of corporate executive pay.
"Many of us are still sorting through the post-holiday inbox by the time our entire annual pay is eclipsed by the rewards for FTSE 100 CEOs.
"Public trust in the UK's pensions industry would only grow if schemes were better known for taking a firm line against excessive boardroom rewards. It's great to see the PLSA being vocal on this theme today."
She further pointed out trustees should be asking questions about how asset managers that manage their members' funds are voting on pay at company annual general meetings.
"For example, I would expect trustees holding Persimmon shares in their fund portfolio to ask how their managers voted on the pay policy that recently allowed the CEO of that company to get a bonus of over £100m.
"Retail shareholders in Persimmon were highly vocal at the time of that vote, arguing against it. But large fund managers acting for pension schemes were the ones who voted it through. This is an area deserving active trustee scrutiny."
The PLSA has worked with Lancaster University Management School to publish a report named Hidden Talent: What do companies' annual reports tell us about their workers? in November 2017.
The report examined corporate reporting employment models and working practices across the FTSE 100 and found substantial variations in the quality of reporting and lack of clarity.
It found while companies spend a lot of time devising complicated and very generous pay awards, only 7% of FTSE 100 annual reports detail the ratio between the CEO's pay and the wider workforce. Only 21% provide evidence of how much they are investing in training and staff development, and just 7% show how much they rely on agency workers or other types of insecure employment.
PLSA stewardship and corporate governance policy lead Luke Hildyard said: "Huge pay differences between executives and the wider workforce symbolise how too many companies fail to understand or appreciate the value of their workers."
He added pension scheme investors use information about the employment models and working practices of the companies they invest in, including the pay gap between the top executives and the rest of the workforce, as indicators of the corporate culture.
He concluded: "As long-term investors, pension funds think that boards should be more sceptical 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 organisations."
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