Parliamentary inquiry into corporate governance: our evidence on executive remuneration

In September 2016, the BEIS committee (Business, Energy and Industrial Strategy committee) launched an inquiry into Corporate Governance. In particular they plan to look at executive pay, directors duties and the composition of boardrooms, including worker representation and gender balance in executive positions.


The inquiry followed on from the failings highlighted by their inquiries into BHS and Sports Direct, and in the wake of commitments from Theresa May to overhaul corporate governance.

As part of their evidence gathering Tom Gosling, PwC’s UK Reward practice leader, was asked to give evidence relating to executive pay at a BEIS select committee hearing.

Below you’ll find a summary of the key recommendations:

Executive pay

Executive pay is, unfortunately, complicated. Pay plans operate over different time periods and are influenced by a range of performance factors. Tom talked to the Select Committee about the link between pay and performance as well as whether the rise is in executive pay has contributed to short-termism.

Tom’s key recommendations to the committee were fourfold:

  1. To address the question of pay fairness and differentials, Tom recommended

    1. broadening the role of the remuneration committee as set out in the UK Corporate Governance Code

    2. a requirement to publish a Fair Pay Report (see example below)

    3. ensuring meaningful engagement takes place with employees

    4. broader Government moves to increase stakeholder voice

    5. quantitative disclosures should focus on changes in pay relativities over time rather than on a pay ratio

  2. To address the question of short-termism, the recommendations were

    1. to re-draft the executive pay section of the UK Corporate Governance Code to encourage the concept that long-term share awards can, in the right circumstances, be a legitimate alternative to target-driven plans

  3. Disclosure rules should be updated to enable a complete view of incentives and the pay-for-performance relationship

  4. Any new shareholder voting powers should use an escalation mechanism to identify those companies to be subject to more stringent provisions (as opposed to applying a more onerous regime across the market)


The BEIS committee published its report into Corporate Governance on 5 April, (see our summary below), saying British businesses must act on corporate governance, executive pay including long-term incentive plans, and boardroom diversity to maintain the country's strong international standing in corporate governance and address a worrying lack of trust of business among the public. The recommendations will be read by the government who may decide to incorporate some of these into policy or legislation.

 

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Tom Gosling
Partner
Tel: +44(0)20 7212 3973
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