Behold this market force

Forget about skirmishes with the EU. Theresa May has given herself a bigger challenge: an assault on corporate executive entitlement.

Britain’s new prime minister, Theresa May, is not afraid of big challenges. Instead of assuming the rabbit-in-the-headlights posture popular with most of her fellow Brits in response to the Brexit vote, she actually opted to try to take control of the situation. That is either amazingly brave or dazzlingly foolish.

But sorting out Britain’s response to Brexit will be the easy part of the challenges May has heaped upon herself. Much more daunting will be how she tries to deal with the “unhealthy and growing gap between what . . . companies pay their workers and what they pay their bosses”.

Forget about possible skirmishes with EU president JeanClaude Juncker and German chancellor Angela Merkel. May is planning an assault on corporate executive entitlement, which has taken deep root behind the protection of institutional fund managers.

May obviously doesn’t believe in the softly-softly let’s-try-topersuade-everyone approach to dealing with problems. In an inspired move, she has unleashed Boris Johnson on the global diplomatic community.

The UK corporate community could be facing the same sort of shock to its system. In the aborted Conservative leadership race, May was outspoken in her criticism of corporate governance and in particular of the supposedly independent nonexecutive directors, stopping just short of calling them a bunch of pointless cronies.

“In practice, they are often drawn from the same narrow social and professional circles as the executive team and the scrutiny they provide is often limited.” One obvious solution, May suggests, is to appoint workers to boards.

Of course, if she should ever feel she doesn’t have enough challenges on her plate, May could also consider ways to reclaim the power of ordinary workers and savers from the fund managers who make excessive remuneration possible.

As someone who has tracked executive pay trends for a long time and now realises executive pay levels are positively correlated with levels of indignation about executive pay, I have become cynical about politicians’ promises on this front.

It was Bill Clinton’s promise to tax excessive pay out of existence that resulted in much of today’s excess; his efforts led to an explosion in the use of share options as a means of awarding executives.

If it had been Tony Blair, David Cameron, George Osborne or even Ed Miliband and not Theresa May, last week’s comments might have created a frisson of discomfort in boardrooms before a quick return to business as usual. May has introduced something new to this situation: a steely determination. And she seems less susceptible than her predecessors to the charms and wiles of the corporate cronies she has targeted.

To date all efforts to rein in executive excess have been overwhelmed by reference to market forces. Executives are presented almost as innocent bystanders who have not contrived to extract wealth from companies but who have had it gifted to them because of their genius and rare skills. Interfering with these market forces, we’re warned, will bring everything tumbling down around us.

May’s progress will be important for SA. We are one of a few countries with no regulations on executive pay other than disclosure requirements. The grimness of this situation was highlighted by PwC’s just-released remuneration report, which warns against the introduction of even a binding vote on pay. Too many shareholders, says PwC, don’t understand the complexity of executive pay sufficiently to deserve a vote.

In this regulatory vacuum, executives and their remuneration committees in SA are merely exhorted to be reasonable. As we know, market forces always trump “reasonable”.

And they relate to what happens in the UK. If May is able to alter market forces in that country, it will ripple into our executive pay practices.