The UK government has published new rules to curb executive pay and give workers more rights in the board room.
Listed companies will the first time have to publish pay ratios between chief executives and their average UK worker under government reforms to boardroom accountability outlined today.
Business Secretary Greg Clark (pictured) set out how the government’s package of corporate governance reforms will enhance the transparency of big business to shareholders, employees and the public.
All listed companies with significant shareholder opposition to executive pay packages will have their names published on a new public register. A fifth of investors have objected to executive annual pay packages. This new scheme will be set up in the autumn and overseen by the Investment Association, a trade body that represents UK investment managers.
In the coming months the government will introduce new laws to require:
- Around 900 listed companies to annually publish and justify the pay ratio between CEOs and their average UK worker
- All companies of a significant size to publicly explain how their directors take employees’ and shareholders’ interests into account
- All large companies to make their responsible business arrangements public
Business Secretary Greg Clark 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”.
The Business Secretary will seek to ensure employees’ interests are better represented at board level of listed companies. He will ask the Financial Reporting Council (FRC), which sets high standards of governance through the UK Corporate Governance Code, to introduce a new requirement in the code to achieve this.
Under the code’s “comply or explain” basis, firms would have to either:
- Assign a non-executive director to represent employees
- Create an employee advisory council; or
- Nominate a director from the workforce.
Responding to the Government’s responsible business reforms, 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.”
Paul Drechsler CBE, Confederation of British Industry President, said:
“Good corporate governance is an essential ingredient of business performance and the bedrock of trust between business and society.
We know that how companies act and behave determines the way people think about business.
Companies take this seriously and we look forward to working closely with the Government to ensure the UK maintains its reputation as a global leader in this field and as a primary location for international investment.”
