Perhaps the UK prime minister set expectations too high when she pledged at the Conservative Party conference last October to "have not just consumers represented on company boards, but workers as well”. The Tory manifesto also mooted plans to make executive pay packages subject to strict annual votes by shareholders, with listed companies forced to publish the ratio of executive pay to broader UK workforce pay.
However, proposals published in response to its November 2016 green paper consultation on corporate governance reforms indicate the government has gone soft on its plans for tighter regulation. The pay ratio plan has been maintained, with action points in motion to support shareholders on concerns around executive pay. However, plans for worker representation have been watered down.
The Financial Reporting Council (FRC) will be asked to make the UK Corporate Governance Code more specific on how premium listed companies should respond to “significant shareholder opposition” to executive pay packages. This is less assertive than the earlier suggestion of annual binding shareholder votes. In keeping with this plan, the Investment Association will be asked to keep a public register of those listed companies that have encountered 20 per cent or more shareholder opposition to executive pay. This will put the onus on companies to outline their plans to overcome such opposition.
The government will also introduce secondary legislation instructing all quoted companies to publish a pay ratio within their annual remuneration reports, comparing the chief executives’ pay with that of average workers. The TUC commends the pay ratio proposal, but warns of the disparity between the average worker and the lowest-paid worker in a company.
Finally, the FRC will be invited to consider a new principle for the code, focusing on “strengthening the voice of employees” and other non-shareholders. This will entail consulting on a provision requiring companies with a premium listing to adopt – on a “comply or explain” basis – either a non-executive director, a formal employee advisory council or a director selected from the workforce.
