Disclosure of CEO pay ratios with median, upper and lower quartiles, anticipating future disclosure requirements of new UK legislation

Mitchells & Butlers plc – Annual report – 28 September 2019

Industry: leisure

REPORT ON DIRECTORS’ REMUNERATION (extract)
CEO PAY RATIOS
For the last three years Mitchells & Butlers has disclosed the pay ratio between the CEO and the median pay of other employees, reflecting emerging best practice. The Government has now introduced legislation that will require all quoted companies with more than 250 employees to publish the ratio of their CEO’s pay, using the single figure for total CEO remuneration to that of the median, 25th and 75th percentile total remuneration of full-time equivalent employees. Whilst this legislation does not require Mitchells & Butlers to comply until the 2020 Annual Report, the Committee feels that it is important to continue to take a lead in this area, as it provides a helpful opportunity to demonstrate the link between CEO pay in the context of overall workforce remuneration. The table below sets out the CEO pay ratio at the median, 25th and 75th percentile for 2019, compared to 2018.

mitchells2

The lower quartile, median and upper quartile employees were calculated based on full-time equivalent base pay data as at 28 September 2019. This calculation methodology was selected as the data was felt to be the most accurate way of identifying the best equivalents of P25, P50 and P75 and, therefore, the most accurate measurement of our pay ratios. Of the three allowable methodologies under the forthcoming legislation, this method is classed as ‘Option C’. Option A was considered but given the high levels of team member turnover, it was felt more appropriate to adopt the approach set out above.

The employee pay data has been reviewed and the Committee is satisfied that it fairly reflects the relevant quartiles given the very large proportion of hourly paid team members employed by Mitchells & Butlers (circa 85% of the total workforce). The three representative employees used to calculate the pay ratios are hourly paid and the base pay elements were calculated using a full-time equivalent hourly working week of 35 hours. Hourly paid employees do not participate in the annual bonus plan or long-term incentive plan and in most cases do not have any taxable benefits. Employee pay does not include earnings from tips and service charge, from which many employees benefit. It is Mitchells & Butlers’ policy to pass all earnings from tips and service charges to employees.

Pay details for the individuals are set out below:

mitchells3

The median pay ratios reported in 2016 and 2017 were completed using a different methodology that calculated actual pay and benefits over the financial year for all employees who had been employed for the full financial year. This methodology is not compliant with the new regulations, but overall the median pay ratio is broadly in line with prior years at 63:1 in 2017 and 44:1 in 2016, a year in which no bonus was paid to the CEO.

The Chief Executive’s base salary increased by 2% from 2018 compared to an overall increase in workforce pay of around 4%. The ratio between the base pay of the Chief Executive and the base pay of employees at each quartile has remained broadly static. On a total pay basis, the ratio of workforce pay to the Chief Executive’s total pay has increased, reflecting the higher levels of variable pay from annual and long-term incentives that have been paid to the Chief Executive in respect of FY 2019. Whilst the pay ratio has increased because of the incentive payments, the Committee believes that the ratio is broadly consistent with that of other organisations in hospitality and retail that have also seen annual and long-term incentive plans increase total earnings for the Chief Executive.

As stated above, hourly-paid employees do not participate in the annual bonus plan, where salaried employees do participate in an annual bonus plan (circa 5,000 employees); they have also seen average bonus earnings increase in percentage terms by a similar amount as that of the Chief Executive in 2019. More broadly, pay in the hospitality sector is lower than many other sectors and this will be an influencing factor in the overall pay ratio, despite significant increases in pay rates over the last few years.