‘Executive salaries are detached from reality’

EXECUTIVE pay has been “ratcheted up” to the point where there is no credible link between pay and performance, a group of MPs has warned.

The Business, Energy and Industrial Strategy (BEIS) select committee is now calling for a crackdown on excessive remuneration as part of a widespread review of corporate governance.

A new report by the committee says faith in corporate governance has been shaken in the wake of scandals such as Sir Philip Green and the BHS pension fund.

Committee chairman Iain Wright said: “Executive pay has been ratcheted up so high that it is impossible to see a credible link between remuneration and performance.

“Pay must be reformed and simplified to incentivise decisionmaking for the long-term success of the business and to pursue wider company objectives than share value.”

The committee has called for businesses to simplify the structure of executive pay and put an end to long-term incentive plans.

Recommendations include workers to have a seat on remuneration committees and for the chairs of these committees to be expected to resign if shareholders reject their proposed pay policy.

The committee has also backed publishing pay ratios annually.

Other recommendations include a target that at least half of all new appointments to senior management positions in the FTSE 350 and listed companies should be women, as well as a new voluntary code of governance for private companies.

“The collapse of BHS highlighted the flaws in damage which private companies can do,” said Mr Wright. “The UK corporate governance system is recognised throughout the world as of high quality. However, recent scandals and the issue of executive pay have undermined public trust in corporate culture.

“That, together with rising stakeholder expectations, changing business models and technology, means that corporate governance needs to evolve to provide assurance to investors and wider society.”

TUC general secretary Frances O’Grady said: “British people are fed up with the bad behaviour of big business. Workers are getting a raw deal and our economy is harmed by short-term thinking in the boardroom. Reform is badly needed and the Government should take up many of the excellent ideas in this report.

“We welcome the committee’s recognition of the value of workers on boards, bringing a broader boardroom perspective and strengthening long-term focus

“But it’s unlikely to become ‘the norm’, as the committee hopes, unless there is a legal requirement,” she added.