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This week (Monday 13th April) has seen the publication of the manifestos of all three major political parties.  All of them address pay issues, in particular low pay, executive pay, and gender pay equality.  Andrew Menhennet – Principal Consultant at Yellow Hat Reward – examines the key undertakings made in the manifestos, and attempts to draw conclusions about what developments we can we expect to see in these areas over the term of the next government, ahead of this most unpredictable of elections.

Low Pay

Both the Conservatives and Labour commit to a national minimum wage of £8/hour by the end of the next Parliament, in Labour’s case by October 2019, while the Conservatives endorse the current recommendation for the rate to rise to £6.70 later this year, which they say is on course for a rate of over £8/hour by the end of the decade.  The Liberal Democrats undertake to look at ways of raising the rate, without specifying a target figure.  All three promise to clamp down on non-compliance.

Pressure on businesses to pay the Living Wage (currently £7.85/hour) looks set to continue in the next Parliament, with all three parties making reference to it in their manifesto.  Listed companies will be required to report on whether or not they pay the Living Wage under Labour, and to publish the number of employees paid less than the Living Wage under the LibDems. The LibDems also commit to pay the Living Wage in central government departments, while Labour promises to use government procurement processes to promote the Living Wage, presumably by exerting pressure on companies bidding for government contracts to make some form of commitment to pay it.  In addition, Labour offers the prospect of tax rebates to companies that sign up to the Living Wage in their first year of office, while the LibDems say they will commission an independent review of the Living Wage.  The Conservatives meanwhile restrict themselves to a more general undertaking to continue to encourage businesses to pay the Living Wage ‘whenever they can afford it’.

The commitments on the National Minimum Wage mean that the rate is likely to increase by between 4-4.5% per annum over the life of the next Parliament, a significant step up from its current level of increase of about 3% pa annum.  Meanwhile if either Labour or the LibDems, or both, end up in power after the election, we can expect to see a greater level of commitment to payment of the Living Wage, with both parties opting for a mix of disclosure and government purchasing power to drive this through.

Executive pay

Pay and governance at the other end of the scale also gets its fair share of airtime in all three manifestos.  The Conservatives choose to focus on bankers’ bonuses, promising a continuation of what they describe as the toughest regime of bonus deferral and clawback of any financial centre.  They also say that they want to see the number of women on FTSE 100 boards rise further from its current level of 25% over the course of the next Parliament.

Labour and the LibDems choose to direct their fire at executive pay, and as with low pay, there are similar themes in the approaches they propose.  Labour promises to simplify pay packages in order to improve the link between executive pay and performance, and to make employee representation on remuneration committees a requirement.  Meanwhile the LibDems commit to making the publication of the ratio between top and median pay a requirement by 2020, and to consult on requirements for companies to consult staff about executive pay.

In addition, Labour‘s manifesto talks about institutional investors having a duty to prioritise long-term growth over short-term profits for the companies in which they are investing, and a requirement to publish details on how they vote on executive pay resolutions, both of which are likely to have implications for the level and structure of executive pay.

So if either Labour or the LibDems end up in power, or with a share of it, it seems likely that employee consultation about executive pay will become a reality in some form.  Similarly we can expect to see further regulatory development for executive pay if either party is in a position to exert influence in the next government.  A Conservative-only government on the other hand is likely to presage a more stable phase in executive pay.  And perhaps the Conservatives’ commitment to a tough bonus deferral regime in financial services can be read as continuing intent to resist EU pressure to limit bankers’ pay through more interventionist methods such as the cap on bonuses as a percentage of fixed pay.

The gender pay gap

Unsurprisingly both the Conservatives and LibDems commit to implementing the requirement for all companies with more than 250 employees to publish details of the gender pay gap, voted through in March this year.   However views differ on how much information companies will be required to publish – the substance of the regulations that determine this will be developed within the next 12 months.  The Conservatives say that companies will have to publish the difference between the average pay of their male and female employees, whereas the LibDem manifesto favours  the publication of details of the different pay levels of men and women.  Labour also commits to requiring large companies to publish their gender pay gap.

Publishing information in some form about the gender pay gap therefore looks set to be the first new pay challenge that medium-sized and larger employers will face under the next government, whatever its composition.  Companies that don’t already monitor pay levels by gender will be well advised to put in place plans to do so as soon as practical.


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