The customer is always right: how to reduce executive rewards with procurement contracts

The customer is always right: how to reduce executive rewards with procurement contracts
Document type
Report
Corporate author(s)
High Pay Centre
Publisher
High Pay Centre
Date of publication
9 May 2014
Subject(s)
Trends: economic, social and technology trends affecting business, People management: all aspects of managing people
Collection
Business and management
Material type
Reports

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This report argues that because major outsourcing companies' rely on public funding, and have a remit to deliver vital public services, it is inappropriate for their executives to be lavished with the kind of payouts common to other large private corporations. As a customer, Government can employ additional leverage over outsourcing companies to set an example in terms of economically and social responsible pay practices. The report notes that European Union rules on Government contracting specifically permit clauses designed to ensure the optimum benefit to wider society from contract awards. Governments are not simply compelled to seek best value in terms of the immediate financial cost to the public finances. As such, conditions of procurement contracts could include:

  • Publication of a pay ratio, including the ratio of top pay to bottom pay.
  • A pay cap for any company receiving public contracts over a certain value, either in absolute terms or as a proportion of their revenue. This could be applied on the same principle that the US Government caps pay for federal contractors - contracted organisations cannot bill for staff time at a higher rate than the President's salary of $400,000.
  • Imposition of a maximum pay ratio in any private sector company providing public services. This could initially be set at a rate of 90:1 but be decreased over a period of 10 years.
  • Worker and consumer representatives to be included on the company board of directors.

As these conditions represent a form of consumer activism rather than Government regulation, they have an additional advantage of creating downward pressure on pay in a way that could appeal to voters of different political persuasions.

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