UK employers must crack down on excessive Exec pay to rebuild public trust, warn MPS


Ministers on the business, energy and industrial strategy Select Committee also called on companies to publish pay ratios between senior leaders and their employees in order to boost transparency.

UK employers must clamp down on excessive executive pay and boost boardroom diversity to restore public trust following a recent series of high-profile corporate scandals, MPs have warned.

Ministers on the business, energy and industrial strategy Select Committee also called on companies to publish pay ratios between senior leaders and their employees to help act as a break on ballooning executive pay levels compared with stagnant wage growth elsewhere. They likewise urged the government to grant the corporate governance watchdog more powers to hold company directors to account.

Committee chair Labour MP Iain Wright warned that recent scandals – such as those at Sports Direct, where workers were until recently paid less than the legal minimum wage – and the ongoing matter of executive pay had undermined trust in corporate culture.

“That, together with rising shareholder expectations, changing business models and technology, mean that corporate governance needs to evolve to provide assurance to investors and wider society,” he said.

MPs also used their report to recommend that businesses simplify executive pay structures and scrap long-term incentive plans (LTIPs) from the start of 2018, which included not renewing existing agreements. One witness had told them during the evidence gathering process that “pay was now so complex that executives themselves do not always understand their own renumeration”.

LTIPs were also accused of distorting executive behaviour as chief executives tailored their decisions to affect the company’s share price when shares were due to vest.

Other proposals made in the report included setting up stakeholder advisory panels that would include workers, consumers and suppliers; having workers’ representatives on renumeration committees, and requiring chairs of those committees to resign if fewer than 75% of shareholders failed to approve the company’s pay policy. But it stopped short of demanding worker representation on executive boards – a proposal made and watered down by Prime Minister Theresa May last year.

The report comes amid widespread warnings to the UK’s largest companies that they face a wave of shareholder revolts during this annual general meeting season. They also risk a formal government crackdown on excessive renumeration unless they start showing more restraint when crafting executive pay.