The Government has announced what it describes as a “world-leading package of corporate governance reforms”, all designed “to increase boardroom accountability and enhance trust in business.”
The most eye-catching requirement will be an obligation for every listed company in the UK to reveal the difference in pay between its average employee and that of the CEO, or equivalent.
In listed companies where one fifth of the investors object to executive annual pay packages, this must be recorded on a public register.
The Government will not be making it compulsory for employees to be represented on their company boards. Instead, companies will be able to designate an existing non-executive director as the representative of the workforce, or companies will be able to comply with their obligation by creating an ‘employee advisory council’.
The Financial Reporting Council (FRC) will work with the business community and the government to develop a voluntary set of corporate governance principles, and large private companies will be invited to sign up to these principles.
Business Secretary Greg Clark MP said:
“One of Britain’s biggest assets in competing in the global economy is our deserved reputation for being a dependable and confident place in which to do business. Our legal system, our framework of company law and our standards of corporate governance have long been admired around the world.
“We have maintained such a reputation by keeping our corporate governance framework under review. Today’s reforms will build on our strong reputation and ensure our largest companies are more transparent and accountable to their employees and shareholders.”
Stephen Martin, Director General of the Institute of Directors, said:
“We welcome the pragmatic approach the government is taking to improve how company boards work. We’re particularly pleased that there will be a code for large private businesses, as the principles of good governance should extend beyond the companies listed on the stock market.
“The Secretary of State is taking a sensible approach on giving workers a bigger say, by allowing companies to choose the best way to implement the new rules. All directors are responsible for the whole company, so any with the specific remit to speak for employees must be adequately trained and aware of their responsibility to promote the long-term success of the business.
“Pay ratios will sharpen the awareness of boards on the issue of remuneration, but they can be a crude measure. Companies will have to prepare themselves to explain how pay as a whole in their business operates, and why executives are worth their packages.”
Noting that the salary data companies will be required to publish will show the difference between executive pay and that of the average worker, rather than that of the lowest paid employee, the Trades Union Congress (TUC) criticised the plans.
TUC general secretary Frances O’Grady said:
“This is a far cry from Theresa May’s promise to crackdown on corporate excess. It’s a feeble proposal, spelling business as usual for boardrooms across Britain.”
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.