Long-awaited plans by the UK government to reform corporate governance have been criticised by the financial sector, opposition politicians as well as the trade union movement.
A major crackdown on corporate excess was one of the most radical proposals promised by prime minister Theresa May when she swept to power last year in the aftermath of the UK’s Brexit referendum.
May had originally pledged to ensure annual binding pay votes and, following the example of countries such as Germany and Sweden, to put workers on the boards of companies.
But both proposals were omitted from the final plan published by the government today.
Instead, all listed firms will be required to publish the pay ratio between bosses and the average worker.
In addition, the government wants to create a new public register of all firms where at least a fifth of shareholders have opposed executive pay packages.
Firms will also be given the option of creating an employee advisory council or assigning a non-executive director to represent staff.
The Pensions and Lifetime Savings Association (PLSA), which represents institutional investors, said it was disappointed that the government had turned down industry proposals that would have required executive pay packages to be supported by a “supermajority” of 75% of shareholder votes.
Luke Hildyard of the PLSA said: “Requiring a supermajority rather than a simple majority (50%) means that it would be harder for companies to force through pay proposals despite serious reservations from their most engaged shareholders.”
Recent research by the PLSA found that 84% of pension funds are concerned about the pay gap in listed companies with 86% believing that executive pay in listed companies is too high.
“Today’s announcement that companies will need to disclose and explain the pay gap between their chief executive and ordinary workers is to be welcomed,” Hildyard said.
“For the average chief executive to receive 128 times the average pay of their staff is hard to justify and appears disproportionate in almost any circumstances.”
Mike Fox, head of sustainable investment at Royal London Asset Management, questioned the need for change saying there was evidence that the current system is working.
“Shareholders have become more proactive and the vast majority of companies have responded appropriately and this is the key reason why chief executive pay has fallen by almost 20% this year,” he said.
Fox added that forcing listed companies to reveal the pay ratio between bosses and workers could be harmful.
“It will show large discrepancies between sectors depending on the nature of the workforce and the results could easily be manipulated,” he said.
Frances O’Grady, general secretary of the Trades Union Congress, said that the package was a “far cry” from the original proposals.
“It’s a feeble proposal, spelling business as usual for board rooms across Britain.”
Vince Cable, the leader of the Liberal Democrat party and former business secretary, said that May’s revised proposals were “disappointing”.
“It is a sign of low growth and low business confidence that Mrs May has felt compelled to U-turn by watering down her proposals,” he said. “The prime minister is offering strong rhetoric but weak action.”
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