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Government review executive pay and boardroom representation

The government have released a green paper today exploring measures that could be taken to improve corporate governance.

29 NOV 2016 | CHRIS SEEKINGS
Corporate governance 'something has to change' ©iStock
Corporate governance 'something has to change' ©iStock


They are seeking public consultation on how to address concerns around levels of executive pay, and representation of workers, customers, suppliers and investors in the boardroom.

In addition, the question is posed at to whether the UK’s biggest private companies should be subject to more rigorous governance rules in order to improve confidence and trust in business.

Prime Minister, Theresa May, said: “For people to retain faith in capitalism and free markets, big business must earn and keep the trust and confidence of their customers, employees and the wider public.

“Where this social contract breaks down, and individual businesses decide to play by their own rules, faith in the business community as a whole diminishes – to the detriment of all.

“It is clear that in recent years, the behaviour of a limited few has damaged the reputation of the many. It is clear that something has to change.”

The average total pay for CEOs of FTSE 100 companies has increased from £1m in 1998 to £4.3m in 2015, peaking at £4.75m in 2011.

This more than quadrupling of pay has been largely due to growth in annual bonuses according to the paper, with the ratio of average FTSE 100 CEO pay to the average pay of full-time employees 47:1 in 1998 and 128:1 in 2015.

The growing number of annual bonuses is reflected in the average number of shareholder votes cast in favour of pay policies and annual remuneration reports, at 93% since the 2013 executive remuneration reforms.

CBI deputy director-general, Josh Hardie, said: “Businesses agree that legitimate concerns exist. It is right that approaches to governance continue to evolve to support a modern, fair economy.

“We look forward to working with the government to finding solutions that enhance the UK’s governance framework.”

The green paper acknowledges that there have been examples of ‘particularly poor corporate conduct’ in relation to considering the views and needs of other stakeholders in a company such as employees, suppliers and pension beneficiaries.

It states that ensuring the composition of boardrooms better reflect the demographics of employees and customers, will give a broader range of social perspectives to decision-making.

This comes after a Trade Union Congress (TUC) poll published earlier today found that 59% of people support the election of worker representatives onto the boards of large companies.

TUC general secretary Frances O’Grady said: “Workers on boards is a policy that’s tried, tested and proven in many other countries. And it will work for Britain too, helping us build a stronger and fairer economy.

“Today we’ve shown Theresa May that the public backs her flagship policy – and that should give her the confidence to take on the big business elites.

“This is about giving workers a say in the decisions that affect them. It’s about making Britain’s businesses more successful by bringing in ideas and insight from the workforce.”

Private companies and limited liability partnerships are not expected or required to meet the same formal corporate governance and reporting standards as publicly listed companies, which this paper is also exploring whether to change.

Institute of Directors director general, Simon Walker, said: “The most important element of the proposals will be greater scrutiny for unlisted companies, which is long overdue.

“There are around 2,500 private firms in the UK, which employ at least 1,000 people, and the damage that can occur when they are poorly governed can be substantial.”