Companies forced to justify CEO-worker pay ratio
LONDON (Reuters) — Listed British companies will have to justify the gap in salaries between their average worker and chief executive under proposed new rules that fall short of Prime Minister Theresa May's initial plan to tackle soaring executive pay.
When May came into power after the 2016 Brexit vote, she vowed to tackle what she called the "unacceptable face" of capitalism, including pay gaps and mismanaged takeovers, that had driven a wedge between British bosses and their workers.
But her initial proposals to put workers on boards and give shareholders binding votes on executive pay have been watered down as her position has weakened.
"I am afraid that the government has bottled it in the face of business lobbying and that doesn't bode well for really tackling some of these big problems," Frances O'Grady, the head of the Trades Union Congress, told BBC Radio.
May has toned down her criticism of big business since she lost her majority in an ill-judged election, undermining her in a party that has for decades encouraged a low-key approach to corporate regulation.
The prime minister has also worked to ease strained relations with business leaders and the heads of some of Britain's biggest companies to secure their support for her plan to leave the European Union.
Under the new proposals which will apply to all listed companies and are expected to come into effect by June 2018, remuneration committees will be tasked with taking into consideration the pay of all their workers when they set executive targets.
In order to bring the voice of the average employee on to company boards, companies will be given a choice between assigning a non-executive director to represent staff, create an employee advisory council or nominate a director from the workforce.
And large private companies will be encouraged to adopt stronger corporate governance arrangements.
Finally, listed companies will also have to publish the ratio between the CEO and their average worker, and those companies that suffer a more than 20 percent shareholder rebellion over pay will be entered into a public register designed to shame firms into changing their ways.
SHAREHOLDER REBELLION
"As we leave the EU and chart a new course for our country, the economy we build must be one which truly works for everyone, not just a privileged few," May said in the government paper.
A survey published in March this year found that the heads of Britain's biggest 100 companies earn more than 400 times the minimum wage.
Companies that have endured big shareholder rebellions in recent years include the advertising giant WPP and oil group BP. Both companies have since reduced the size of the packages for their chief executives.
British business lobby groups such as the Institute of Directors and the Investment Association welcomed the plans as a pragmatic and sensible way for the government to bring about change in the industry.
"The (minister) is taking a sensible approach on giving workers a bigger say, by allowing companies to choose the best way to implement the new rules," said the Institute of Directors' director general, Stephen Martin.
Chris Cummings, chief executive of the Investment Association, whose members manage the pensions of around three quarters of British households, said: "Our members ... believe that not all company boards that receive big shareholder dissent are currently doing enough to address investor concerns.
"This public register will help sharpen the focus on the those who must do more."
