The UK government has signalled that it will taking a shareholder and stakeholder market-based approach to governance reform rather than introducing more rules on executive pay. According to early briefings reported in the on  Financial Times (FT) and Daily Telegraph  he government’s response to the consultation on its corporate governance paper green paper, will published next week.

While proposals for more stringent binding votes would not be put in place George Parker, the FT’s political editor, reported that the government said there would be measures to improve pay transparency. Parker also quoted a government official stating that the corporate governance reforms would make large companies more transparent and accountable to both staff and shareholders.

Parker referred to “a long-awaited paper” being published which suggest that this would now be a white paper which would provide more details of the government’s reform plans and could include a draft bill. However, both the Telegraph and the FT noted that improving pay transparency could be achieved through non-legislative means. The most likely option for achieving this would be through strengthening the UK’s corporate governance and stewardship codes administered by the Financial Reporting Council (FRC). The FRC has already announced it will consult later this year on a revised code and said that its reforms would reflect the government’s final proposals made in response to the green paper’s consultation.

UK executive pay votes
Theresa May’s government backs down from tough governance reforms

It was noted by many that the Queen’s Speech in June did not refer to a corporate governance bill and the FT said the prime minister Theresa May has been reluctant to put forward non-Brexit-related legislation after losing her majority in the snap general election held earlier that month. As Parker suggested however tougher votes on executive pay may well have received backing from the Labour Party. Both parties backed tougher action on executive pay during the general election campaign.

Media reports described the decision on pay votes to be the second climb-down by the government on corporate governance issues as it responded to concerns from business. May’s original proposals for company boards suggested she supported worker representatives being members of the board. However, May subsequently toned this down by indicating that there should be a mechanism for representing employees’ interests in the boardroom. The green paper then suggested a range of options for how this could be achieved.

Speaking in the Mail on Sunday, Theresa May spoke of her concerns that excessive boardroom greed was the ‘unacceptable face of capitalism;’, noting that “if the bosses don’t deserve the pay rise, investors can ‘take their money elsewhere’, adding, ‘when big businesses are brought into disrepute, public trust in an open, free-enterprise economy is weakened.’

CEO Pay Revolts – Who’s in the 20% Club?

Rather than waiting until the end of the year for the government’s proposed register of AGM voting revolts, Manifest is marking the launch of its 2018 voting platform upgrade with the release of two key data tables which give an insight into CEO pay ratio trends and remuneration revolts over the past four years.

UK Pay Revolts CEO Pay Ratios

These free resources will be kept up to date on a daily basis to help companies, investors and stakeholders see the progress that has been made in recent years to improve governance in the UK. The AGM revolts of the past 10 years can hardly be said to be unknown given the media coverage they receive. What isn’t yet clear from the government is how investor governance will be addressed. The implementation of the Shareholder Rights Directive, is however, scheduled for completion prior to BREXIT.

Investor governance

All eyes will now be on how pension trustees and other shareholders engage with the government’s proposed governance model. The Pensions Regulator has already issued its guidance on what it expects in terms of active ownership.  What comes next with more asset manager stewardship disclosure will help savers make more informed choices about the stewardship style of their investment managers, as much as the pay of CEOs.

Last Updated: 27 August 2017
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