Executive pay needs reform — British MPs
• Parliamentary committee backs shareholder power
British businesses must overhaul their executive pay and perks to rebuild public trust after a spate of corporate scandals, MPs said on Wednesday.
A report by parliament’s business, energy and industrial strategy committee said companies should publish pay ratios annually, give workers a seat on the committee that sets pay and have women make up half of all new senior and executive level appointments from 2020.
Executive pay is a hot political topic in Britain after Prime Minister Theresa May campaigned to help those who voted for Brexit in protest at “out of touch” elites.
Corporate scandals such as the collapse of retailer BHS, which was sold to a serial bankrupt with no retail experience, have fuelled mistrust of well-paid company bosses during a period of mediocre wage growth for most Britons.
“Successful, productive and profitable companies cannot be disconnected from society,” said Iain Wright, chairman of the committee, adding that it was now “impossible to see a credible link between remuneration and performance”.
The committee, whose recommendations are not binding but are likely to be looked at closely by May’s government, singled out long-term incentive plans as lacking in transparency. These aim to align the interests of company executives and shareholders by linking pay to the performance of the firm over years. Many of the plans have been criticised for being too complex and too generous, and shareholder revolts over pay have become commonplace.
“Pay must be reformed and simplified to incentivise decision-making for the longterm success of the business and to pursue wider company objectives than share value,” Wright said.
The Confederation of British Industry agreed long-term incentive plans could be too complex but said banning them would limit flexibility for companies to reward executives.
The Financial Reporting Council, which is tasked with policing corporate behaviour, said it hoped for greater powers to hold directors to account.
“The depth and breadth of the recommendations, if fully adopted, will have significant implications for the [council’s] remit, resources and funding,” it said in a statement.
But Jonathan Chamberlain, partner at law firm Gowling WLG, said any changes to executive pay or worker representation would be “practically difficult as well as ideologically divisive”. Chamberlain said a “light-touch” reporting obligation on issues such as pay and conditions could help prevent instances of abuse such as at Sports Direct, which drew the ire of politicians.
SHAREHOLDER UNREST
The Investment Association, Britain’s main trade body for asset management firms, backed the report. Asset managers have voiced concern over pay and other governancerelated resolutions at companies’ annual general meetings.
Sky News reported on Monday that BP had agreed to cut about £5m from CEO Bob Dudley’s maximum pay for the next three years in a bid to ease shareholder unrest.
Last week, Reckitt Benckiser said the 2016 pay package of CEO Rakesh Kapoo fell more than a third following a safety scandal in South Korea that dented its performance.
“The report sets out further welcome measures to strengthen investors’ hands and provide better reporting to shareholders on how the board has taken the views of their stakeholders into account,” said Andrew Ninian, the Investment Association’s director of stewardship and corporate governance.
ASSET MANAGERS HAVE VOICED CONCERN OVER PAY AT COMPANIES’ ANNUAL GENERAL MEETINGS