Britain plans to push firms to come clean on executive pay
U.K. measures include a register that ‘names and shames’ those that faced shareholder pushback
LONDON— Worried by a long-term rise in inequality, Britain announced on Tuesday a series of measures aimed at increasing transparency over executive compensation, hoping to ramp up pressure on companies that offer lavish salaries for bosses but restrict pay for regular employees.
The proposals include plans to force all publicly listed companies to publish their wage ratio, comparing their chief executive’s salary with that of the average worker, as well as the creation of a register that “names and shames” firms that faced shareholder opposition over executive pay levels.
In much of the Western world, public anger is growing over what critics say are excessive wages for senior business leaders. That has helped contribute to a populist backlash in many countries, as the gap between the salaries of employees and their managers has widened markedly.
In the United States, pay packages for top bosses grew last year, with the highest paid, Thomas Rutledge, the chief executive of Charter Communications, making $98 million (U.S.). That was 2,617 times the average salary for U.S. workers.
The difference is not as stark in Britain, but has nevertheless increased significantly in recent years. The average chief executive of a company listed on the FTSE100, the country’s benchmark stock index, made 129 times as much as a regular employee last year, according to the Chartered Institute of Personnel and Development. That was up from 45 times as much 20 years ago.
But it has become an increasing point of contention here.
In one case, investors in the energy company BP protested in 2016 against the $25.3-million (Canadian) compensation package awarded to the company’s chief executive, Robert Dudley, in 2015 — a majority voted against the deal in a non-binding vote. And the salary of Martin Sorrell, the head of the advertising giant WPP, regularly attracts pushback from shareholders. Sorrell made £48 million, or about $78.3 million, last year.
That expanding gulf has spurred the government’s proposals, which it plans to put into effect by June. In addition to forcing the publication of pay ratios, officials would set up a public register listing companies that faced opposition on pay packages from at least a fifth of shareholders.
Listed businesses would be pushed to improve employee representation on boards by assigning a non-executive director to represent workers, creating an employee advisory council or nominating a director from the workforce. There is no punishment for failing to do so, but companies would have to announce why they had not followed the requirements.
“Today’s reforms will build on our strong reputation and ensure our largest companies are more transparent and accountable to their employees and shareholders,” Greg Clark, Britain’s business secretary, said in a news release.
Last weekend, U.K. Prime Minister Theresa May wrote in the Mail that some firms “ignored the concerns of their shareholders by awarding pay rises to bosses that far outstrip the company’s performance.”
Still, unions and analysts criticized the measures, arguing that they lacked teeth. The Trades Union Congress, an umbrella organization of labour unions, derided the plans as a “box-ticking exercise,” while the opposition Labour Party said that the efforts could be easily ignored.
Greg Campbell, a partner in the employment department at the law firm Mishcon de Reya, said the efforts to increase worker representation were also relatively mild because company directors in Britain are already required to consider employee interests.
“A diversity of views is always worth having,” he said, “but I don’t think it is enough to really shift the dial.”
Still, some are hopeful that the measures will raise awareness of worsening inequality.
“This is obviously a more voluntary nudge approach to improve corporate governance, but I think there is no magic bullet,” said Ben Willmott, head of public policy at the Chartered Institute of Personnel and Development. “Regulation can only take you so far because a lot of these issues are around organizational culture and leadership.”