A group of 37 British and Irish Church denominations and organisations whose members manage investments worth £12bn, an amount comparable with one of the UK's 10 largest pension schemes, today proposes that the ratio between the pay of top executives and that of the average pay of the lowest 10% in their companies should be limited to 75:1.

By way of comparison, The Ethics of Executive Remuneration: A Guide for Christian Investors notes the pay differential at Tesco is 526:1, compared with the much more modest differential at BA of 15:1, which perhaps puts the current dispute between Unite and BA managers in a different light.

This contribution to the debate over how Capitalism should be reformed is to be welcomed. However, in a sense the report does not go far enough. Our next Cambridge Paper, due out at the end of this month, suggests five steps to reforming the economy. One of these includes the following idea:

'A proposed Relational Ratings Agency, which rates companies by their compliance with a new ‘Relational Business Charter’, would help investors and investing institutions evaluate whether the companies they invest in are operated with proper respect for their stakeholder relationships.'

The compliance factors envisaged go beyond the seven recommendations made in the Church Investors Group report, which contain little that is particularly specific beyond the issue of pay differentials. These factors were presented by Michael Schluter and Jonathan Rushworth at our Cambridge Papers Open Day last summer:

1. Modify the goals of the company by including relational business objectives in its constitution.
2. Ensure shareholders, directors and employees have been properly trained in the relational purpose and ethos of the company.
3. Promote dialogue among all significant stakeholders, for example by holding quarterly meetings for all stakeholders.
4. Encourage direct ownership of shares by individuals and families, in particular by ensuring that at least 25 per cent of equity is held by individuals.
5. Encourage all shareholders to maintain a long-term investment in the company, for example by providing incentives for shareholders to hold their shares for longer than 3 years.
6. Protect the family and community interests of employees, including a guarantee that all employees have one weekend day off each week and a maximum 48-hour working week as under EU rules.
7. Demonstrate that the contributions of all employees are valued by keeping company gross pay differentials within a 20 to 1 ratio.
8. Maintain company financial stability by keeping the debt to equity ratio below 3:1.
9. Ensure suppliers are treated fairly, for example by paying them within 30 days.
10. Fulfil obligations to the wider community, including protecting the physical and social environment.

To find out more about the Relational Business Charter, watch Jonathan Rushworth discuss the topic in Is it time for relational companies? or read the summary of the session from our Cambridge Papers Open Day Proceedings 2009

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