Listed British companies will have to justify the gap in salaries between their average worker and CEO under proposed new rules that fall short of British Prime Minister Theresa May’s initial plan to tackle soaring executive pay.
When May came into power after last year’s 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.
However, 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,” Trades Union Congress general secretary Frances O’Grady 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 EU.
Under the new proposals, which will apply to all listed companies and are expected to come into effect by June next year, 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, firms will be given a choice between assigning a nonexecutive director to represent staff, create an employee advisory council or nominate a director from the workforce.
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, with those that suffer a more than 20 percent shareholder rebellion over pay to be entered into a public register designed to shame firms into changing their ways.
“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.
A survey published in March 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 advertising giant WPP PLC and oil group BP PLC. Both companies have since reduced the size of the packages for their CEOs.
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 [prime 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,” Institute of Directors director-general Stephen Martin said.
Investment Association chief executive Chris Cummings, whose members manage the pensions of about 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.”
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