Listed UK firms have to justify CEO-staff pay gap

London's financial district. Under the new proposals which are expected to come into effect by June next year, remuneration committees will be tasked with taking into account the pay of all their workers when they set executive targets.
London's financial district. Under the new proposals which are expected to come into effect by June next year, remuneration committees will be tasked with taking into account the pay of all their workers when they set executive targets.PHOTO: BLOOMBERG

But proposals fall short of May's initial plan to tackle exec wages

LONDON • Listed British companies will have to justify the gap in salaries between their average worker and chief executive under proposed new rules that fall short of Prime Minister Theresa May's initial plan to tackle soaring executive pay.

When Mrs May came into power after last year's Brexit vote, she vowed to tackle what she called the "unacceptable face" of capitalism, including pay gaps and mismanaged takeovers, that had driven a wedge between British bosses and their workers. But her initial proposals to put workers on company boards and give shareholders binding votes on executive pay have been watered down as her position has weakened.

Trades Union Congress head Frances O'Grady told BBC Radio: "I am afraid the government has bottled it in the face of business lobbying and that doesn't bode well for really tackling some of these big problems."

Mrs May has toned down her criticism of big business since she lost her majority in an ill-judged election, undermining her in a party that has for decades encouraged a low-key approach to corporate regulation.

She has also worked to ease strained relations with business leaders and the heads of some of Britain's biggest companies to secure their support for her plan to leave the European Union.

Under the new proposals which will apply to all listed firms and are expected to come into effect by June next year, remuneration committees will be tasked with taking into account the pay of all their workers when they set executive targets.

To bring the voice of the average employee on to company boards, firms will be given a choice between assigning a non-executive director to represent staff, create an employee advisory council or nominate a director from the workforce. And large private companies will be encouraged to adopt stronger corporate governance arrangements.

Finally, listed firms will also have to publish the pay ratio between the CEO and their average worker, and those companies that suffer a more than 20 per cent shareholder rebellion over pay will be entered into a public register designed to shame firms into changing their ways.

"As we leave the EU and chart a new course for our country, the economy we build must be one which truly works for everyone, not just a privileged few," Mrs May said in the government paper.

A survey published in March found that the heads of Britain's 100 biggest firms earn more than 400 times the minimum wage. Companies that have endured big shareholder rebellions in recent years include advertising giant WPP and oil group BP. Both companies have since reduced the size of the packages for their chief executives.

British business lobby groups such as the Institute of Directors and the Investment Association welcomed the plan as a pragmatic and sensible way for the government to bring about change in the industry.

"The (government) is taking a sensible approach on giving workers a bigger say, by allowing companies to choose the best way to implement the new rules," said Institute of Directors director-general Stephen Martin.

REUTERS

A version of this article appeared in the print edition of The Straits Times on August 30, 2017, with the headline 'Listed UK firms have to justify CEO-staff pay gap'. Print Edition | Subscribe