Frequently Asked Questions (FAQ)
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You prefer to quote ratio of highest salary to median salary. Do you have any quick pros/cons as to why highest:median as opposed to highest:mean or highest:lowest?
An Independent Government Review – the Hutton Review of Fair Pay in the Public Sector (2011) – examined models of pay ratio calculation in detail, recommending the most appropriate ratio (multiple) to track is that of top executive earnings to the median earnings of each organisation’s workforce because:
- Median earnings are more representative of the pay of the whole of an organisation’s employees, so a median-based multiple would be a more appropriate mechanism for linking executive pay to that of the wider workforce.
- A multiple based upon median earnings would be less sensitive to changes in the bottom of the workforce structure, and so would be less susceptible to manipulation, for example through the outsourcing of low-paid workers.
- Such a measure would be more consistent with international practice in monitoring pay dispersion, notably that from 2011 listed companies in the United States will have to publish the multiple of their chief executive to median earnings.
The highest pay to median pay model of pay ratio calculation is concordant with the UK reporting requirements of the Government Reporting Manual, Monitor, and The Code of Recommended Practice for Local Authorities on Data Transparency.
Calculation of the median average typically includes the remuneration of all staff. However, in a highest:median pay ratio, the highest remuneration may be excluded in the calculation of the median.
Employers not under specific instruction may of course select their own model of pay ratio calculation. A number of employers publish more than one pay ratio figure (see for example, The Equality Trust).
We have many part time employees. I assume that, to get the median salary (or mean) for this purpose, we should calculate FTE salary of what each of them earns, and then ascertain the average and calculate the ratio?
As yet there is no universally accepted standard method of pay ratio calculation.
Section A.5.1.2 of the Hutton Review of Fair Pay in the Public Sector (2011) states:
The median earnings figure used for the multiple should be the median full-time-equivalent earnings of all staff employed by the organisation on the first day of the relevant accounting period.
The Government Reporting Manual and Monitor assume a similar approach.
The Hutton Review of Fair Pay in the Public Sector (2011) further states:
the pay multiple should therefore be calculated on the basis of all taxable earnings for the given year, including base salary, variable pay, bonuses, allowances and the cash value of any benefits-in-kind.
Is there a place in an annual report where one might most appropriately mention this? In the current draft it is alongside the staff costs, which is a Note to the Accounts (so somewhat buried) but it is hard to find an appropriate place in the narrative.
For example, The Co-operative Group includes its pay ratio in its Remuneration Report (2013).