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On 11 October, think tank Social Market Foundation (SMF) released a focused on how to encourage businesses to use their decision-making to promote wage and career progression amongst low paid workers.  The report brings into focus tax and regulatory policies which could be put into place in order to drive change in these areas. 

SMF is an independent charitable organisation which aims to ‘stimulate public discussion on the performance of markets and the social framework within which they operate’. The organisation notes that a lot has been done in recent years to increase the wage floor, with the government increasing minimum wage in April 2018 to £8.21, aiming to increase this to £10.50 by 2024. However, SMF notes that despite these efforts ‘the minimum wage is acting as a ceiling’ for many workers.  Resultantly, the report sets out numerous recommendations which urge the government to do more to address these issues.  These recommendations include:

•            Strengthening company law

•            Issuing official guidance on pay levels and progression

•            Using stakeholder pressure

•            Accreditation schemes

Amongst the recommendations is the suggestion that directors take responsibility to ensure employees at all levels share in the proceeds of company growth. The report proposes this is done by amending s.172 of the Companies act 2006 in order to encapsulate this change. It goes on to further state that adherence to this section should be monitored. S.172 sets out the duty of the director to ‘promote the success of the company’ and states that the interests of employees must be considered when demonstrating this duty.

The government has already tightened regulations around this area with the release of the revised UK Corporate Governance Code 2018 (effective as of January 2019), which requires companies to disclose compliance with s.172 to shareholders. The revised code recommends that there is more engagement with the workforce, for example by having a director appointed from the workforce and states that there should be disclosure regarding the company’s approach to rewarding the workforce.  Alongside this, The Companies (Miscellaneous Reporting) Regulations 2018, which is also due to come into effect in January 2019, requires ‘companies with more 250 UK employees to publish pay ratio information comparing the remuneration of the CEO with the 25th, 50th and 75th percentile of the full-time equivalent remuneration of the company’s UK employees’.

SMF note that as well as legal considerations, companies respond to numerous factors in relation to wage and career progression, including reputational concerns and pressure from investors.  As such, it proposes more pressure is placed on companies by enforcing a disclosure requirement regarding employee wage and HR practices. The idea is that this would ‘exert pressure on them to conform to the expectations of consumers, investors, employees and/or wider society’ in order to maintain a good reputation.  With regard to pressure from investors, SMF encourage shareholder activism and suggest that third parties consider the treatment of low paid workers with a view to them featuring more ‘prominently’ in environment, social and government criteria, in addition to adopting the Living Wage. 

Director pay has come under increased scrutiny, which the government addressed in the revised 2018 UKCG code. Directors are required to consider workforce remuneration when considering the policy for executive director renumeration.  These concerns have been reflected in the FTSE 350 shareholder resolutions, where Market Tracker notes of the companies with significant no votes (ie at least 20% of votes against the proposed resolution) in 2018, 46.4% of these companies experienced resistance regarding directors renumeration policy.  Market Tracker will look at shareholder voting during the 2019 AGM season in more depth in the upcoming AGM report, to be published next month.