Executive pay crackdown announced by May

BY Fraser Tennant

Tighter controls on executive pay designed to curb the excesses of the “privileged few” have been proposed by UK prime minister Theresa May this week as part of an anti-elitism drive to regulate company behaviour and create a more equal country.

The proposals contained in the ‘Corporate Governance Reform’ Green paper are part of Ms May’s attempt to restore public trust in business practices and close the gap between those at either end of the corporate ladder (an increase in inequality being one of the main reasons for Brexit).  

In a statement outlining its intent, the UK government stated that it would bring to an end the behaviour of "an irresponsible minority of privately-held companies acting carelessly – which left employees, customers and pension fund beneficiaries to suffer when things go wrong".

Ms May’s drive to tackle unsavoury corporate behaviour focuses on five specific areas: shareholder voting and other rights; shareholder engagement on pay; the role of remuneration committees; pay disclosure; and long-term pay incentives. One of the main components of the prime minister’s plans is the question of whether a new pay ratio requirement should be introduced.

However, a proposal to have workers represented on company boards has already been sidelined. Business minister Greg Clark indicating that the government was unlikely to change the unitary boards system currently in place.

Providing a stark illustration of the disparity between pay in the boardroom as opposed to the shop floor, is a TUC study (September 2016) which found that, in 2015, the average FTSE 100 boss earned 123 times the average full-time salary. Furthermore, the median total pay (excluding pensions) of top FTSE 100 directors increased by 47 percent between 2010 and 2015, to £3.4m. In contrast, the average wages for workers were found to have risen by only 7 percent over the same period.

The TUC research also found that those companies with high pay inequality between bosses and workers tended to perform less well overall.

“Two thirds of people think executive pay is too high, so we support the Government’s intent to help rebuild trust and strengthen accountability in this area,” said Fiona Camenzuli, a partner in PwC’s Reward & Employment team. “Enhanced shareholder powers and engagement, greater focus by boards on pay fairness, appropriate employee and stakeholder voice in the boardroom, and making pay plans simpler and longer term can all contribute to making pay work better to support the long-term performance of UK companies. The Green Paper presents a wide range of sensible options and we encourage a robust debate, based on evidence, to determine the right policy proposals.”

Following consultations on the Green Paper, a White paper is expected in early 2017. “It will be a consultation that will deliver results,” said Ms May.

News: ‘Corporate Governance Reform’ Green paper

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