Current arrangements for executive pay are causing ‘damage’ to the reputation of British business, according to a report from the House of Commons Select Committee on Business, Energy and Industrial Strategy (BEIS), which conclude that the Committee has no confidence that progress in reforming top pay will be made without further regulatory and stakeholder pressure. The Committee report makes a number of recommendations on executive pay, including a radical proposal to scrap long-term incentive payments from 2018, to be replaced by long-term equity holdings.
The report also calls for bonuses to be based on wider performance criteria, including qualitative factors. It stops short of recommending that shareholders have a binding say on pay, leaving the current advisory say provision, although does recommend that the chairs of any remuneration committee receiving less than 75% support for executive pay proposals should be ‘encouraged to resign’.
Companies will not be made to include an employee representative on remuneration companies, but will be asked to explain their positions if they choose not to enhance worker representation in this way. Companies, public sector organisations and large third-sector bodies will be required to publish pay ratios between the CEO and senior management and the CEO and all UK employees if the recommendations of the BEIS committee find their way into legislation after the general election.
Commenting on the report, Ben Willmott, head of public policy at the CIPD, said:
‘The specific recommendations on executive pay are . . . very welcome, with the committee recognising the value that pay ratios will bring to the debate on executive remuneration. Organisations should not be afraid of open conversations about executive pay and ensuring rewards are appropriately aligned with people’s contribution across the business and pay ratios will help to underpin those discussions.’