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UK government pushes for corporate salary reform

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By Andy jalil - Foreign Correspondent — With Prime Minister Theresa May looking to stamp her authority on boardrooms across the city (financial district), the government has launched its overhaul of executive pay despite warnings from business groups that she should not adopt an approach that is too hardline. May is pressing ahead with plans to bring salaries in line with corporate performance.


Her office has revealed the proposals in a green paper, just over a week after May told the Confederation of Business Industry (CBI) annual conference that businesses would not be required to install workers or trade union representatives in their boardrooms — which was something she was intending to implement.


The government will consult over plans for a range of measures, including a requirement for large, public companies to publish pay ratios showing the difference between chief executive and median salaries; binding votes on executive pay packages, and a broad need to improve the effectiveness of remuneration committees. However, the Prime Minister’s eagerness for intervention has left companies wary of the government’s approach.


A spokesman for the Institutes of Directors said: “Does (a pay ratio) really provide any useful information? Goldman Sachs might look better than Tesco under this kind of regime, but does it really tell you anything? We have got to the point where this is probably going to come in, so companies are going to have to get ready for it.”


British Chamber of Commerce director general Adam Marshall warned that a hardline approach would undermine collaboration between the Prime Minister’s office and employers. He said: “It’s extremely important for government and business to work together at such a critical moment for this country and I wouldn’t want to see that in anyway negatively affected. It’s good to see ministers are listening to a wide variety of business views on the UK, and considering a range of options.”


Marshall added: “The business department has been listening and has been looking at the various options and what we have been trying to impress on them is that we have a very strong corporate governance culture in this country, and we should see moves like this to improve that only where it is obviously needed, and otherwise we should be working hand in hand.” And Mark Littlewood, director-general of free-market think tank the Institute of Economic Affairs, branded the plans “the politicisation of pay”.


Outgoing Institute of Directors (IoD) boss Simon Walker warned employers off trying to fight May’s plans to clamp down on executive salaries. While the IoD has long fought against ratios as a blunt instrument, Walker told an audience at the High Pay Centre that business should not close ranks and fight plans for reforms.


“Although CEOs harrumphed over policies like the minimum wage, the message was clear that business and government shared common goals, and could talk to each other,” Walker said. He added: “After Brexit and Trump, business should expect a new level of scrutiny and questioning of their role in society. It would be foolish now for companies to close ranks and defend the high pay status quo.


“How they react on that issue may prove to be the litmus test for the relationship between business and government over the next few, rather bumpy years.” Having served as director general of the IoD since 2011, Walker is leaving his post for one in the public sector, moving into government to serve as a non-executive


at minister Liam Fox’s department for international trade.


Businesses in general have welcomed new proposals on corporate governance which appear to show Theresa May continuing to tweak her stance on the sector. The government’s green paper also revealed that plans for binding annual shareholders votes on pay could be limited to some elements of remuneration, such as bonuses, and only for companies that have previously met opposition. Suggestions also include a new governance code for unlisted companies.


Commenting specifically on powers for shareholders to review pay, PwC reward and employment partner Fiona Camenzuli added current rules of binding and advisory votes are already sufficient. She said: “Reform should be focused on the small number of cases where companies either lose a vote or achieve consistently low levels of support. We support an escalation approach where additional binding votes are introduced for companies either losing a vote or getting consistently low levels of support.”


— andyjalil@aol.com


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