Aviva Investors, the fund management arm of the insurance giant, has issued its engagement priorities for 2023—with executive pay and the corporate response to ongoing cost-of-living difficulties number one on the firm’s agenda.
Aviva says it expects pay rises to be “below the average” for the wider workforce, while companies should also be “mindful” of pay ratios when settling executive pay rates. Aviva notes that it would be “inappropriate for highly paid executives to be fully insulated from the impacts of inflation”.
Mark Versey, chief executive of Aviva Investors, says: “Events over the past year have forced us all to revaluate and adjust near-term priorities to navigate the lingering reverberations from the pandemic and political, social and economic turmoil caused by the war in Ukraine.”
The cost of living continues to be a headline issue for the UK. Last week, the Bank of England revealed its pessimism for the economy with a hike in interest rates: from 3.5% to 4%.
The Bank anticipates recession this year in the UK, though perhaps not as severe as first forecast. In December, inflation was revealed to be 10.5%, although the Bank of England forecasts that to fall to 4% by the end of this year and back below 2% some time in 2024.
But, in an echo of warnings from investors during the pandemic that execs should share the pay stresses of their employers, Aviva is concerned boards hold the cost-of-living crisis front of mind when making decisions.
It reminds bosses to: pay a living wage; offer financial support to lower income workers without “financial resilience”; avoid exploitation of vulnerable workers; and even support vulnerable customers with adapted services or pricing models.
And, at a time when the UK is witnessing a wave of strikes over pay demands and working conditions, Aviva says companies should “engage” with trade unions in “good faith” to find “balanced outcomes recognising the impact of high inflation on real wages”.
Engaging the S in ESG
Aviva Investors will also engage on reducing greenhouse gas emissions and reversing nature loss, but the statement and letter sent out this week is an emphatic reminder to boards that the cost-of-living crisis is also an issue of corporate governance.
In January, the Financial Times revealed research suggesting that FTSE 100 companies had not matched inflation with pay rises, leaving workers worse off. The FT found an average pay rise of 6%.
At New Year, the High Pay Centre think tank said that the average earnings of a FTSE 100 chief executive had by 2pm on 5 January already surpassed the median full-time worker’s salary. At the time, Luke Hildyard, director of the High Pay Centre, said: “In the worst economic circumstances that most people can remember, it is difficult to believe that a handful of top earners are still raking in such extraordinary amounts of money.”
While Aviva may be one of the first UK outfits to issue an executive pay warning, other have sounded the alarm. Nicolai Tangen, chief executive of Norges Bank, the world’s large sovereign wealth fund, made it clear that as people struggle with the cost of living, high executive pay rises are unacceptable.
“At a time when the cost of living is climbing, it is not sustainable to increase executive pay aggressively while average wages lag far behind. There has never been a worse time for corporate greed,” Tangen said.
Executive pay is a perennial issue, but the context changes. Currently, the cost-of-living crisis sets the parameters of what investors expect. It also demonstrates how much governance decisions function in a societal context. Companies cannot stand aloof as their employees grapple with rising food prices, fuel inflation and growing mortgage costs.