Theresa May’s Executive Pay Plans Come Under Scrutiny

Theresa May’s Executive Pay Plans Come Under Scrutiny

As part of her populist pledge to support British workers against “the interests of a privileged few,” UK Prime Minister Theresa May announced upon taking office in July that her government would require UK companies to add employee representatives to their boards of directors and curb the growth of executive compensation. Last week, May walked back her proposal for employee representation on boards, saying it would not be mandated but rather suggesting that the government would encourage organizations to find their own ways to give employees a voice in corporate governance.

On matters of executive pay, however, May’s government is moving ahead, and is expected to release a green paper on Tuesday detailing proposals to make shareholder votes on pay packages binding rather than advisory, to require companies to disclose the ratio between the compensation of the CEO and the median employee, and to improve the effectiveness of compensation committees and force them to consult more extensively with shareholders and the wider company.

Now, May’s proposals for curbing excessive executive pay are also being questioned. May’s Critics of regulatory restrictions on CEO pay argue that they tend to backfire in various ways, and in a new report, the Big Innovation Centre, an independent think tank, has said the same of May’s plans, Rob Davies writes at the Guardian:

The authors – including Bank of England chief economist Andy Haldane and Clare Chapman, remuneration chief of B&Q owner Kingfisher – cast doubt on the wisdom of binding shareholder votes on executive rewards. They also criticised proposals to force firms to publish their pay ratio, which reflects the earnings difference between shopfloor workers and executives.

Making investors’ votes on executive remuneration legally binding would be a “disproportionate” response that would have “many negative unintended consequences,” the report claimed.

It said shareholders would be less likely to vote against pay deals if they were binding, in case chief executives were destabilised or discouraged from staying in the role. Instead, they recommend that companies introduce a binding vote only after 25% of shareholders vote against the pay report two years in a row.

Meanwhile, former Labour party leader Ed Miliband has mocked May for pushing policies to curb executive pay similar to those he proposed in 2012, which came under attack from her colleagues in the Conservative party at the time.