The Business, Innovation and Skills ("BIS") Select Committee announced on Friday that it is launching an inquiry into corporate governance, focussing on executive pay, directors duties and boardroom composition, including employee representation and increasing the number of women in executive positions.
Looking at executive pay in isolation, the inquiry follows a series of developments over the summer including the GC100 and Investor Group's updated guidance on remuneration reporting and the Executive Remuneration Working Group's Final Report on the current executive pay regime. The outcome of the Inquiry is likely to influence the corporate governance proposals trailed by Theresa May as part of her leadership campaign which the Government intends to announce before Christmas. These issues are highlighted in our recent briefings on executive pay: GC100, Executive Remuneration Working Group and Remuneration Reports.
The terms of reference for the Inquiry are wide-ranging, leaving the Committee significant discretion to examine executive pay in the round. General themes that the Committee will consider include: the factors that have influenced the rise in executive pay over the past 30 years; how executive pay takes account of a company's long-term performance; whether pay should reflect the value added by executives relative to more junior employees; how (if at all) the Government should seek to influence or control executive pay; and whether recent high-profile shareholder actions demonstrate that shareholders should be given a greater role in setting pay than they do under the current framework.
The Inquiry comes at a time of increased scrutiny into, and growing support for the introduction of stricter checks on, executive pay. The reference to considering how the Government could "control" executive pay indicates that the Committee may be willing to support introducing a more prescriptive regime than is currently in place and the outcome of the Inquiry is likely to provide an influential view on Theresa May's commitment to introduce annual binding votes on directors' pay. Companies which have maintained an unamended remuneration policy since the current regime was first introduced in the 2014 AGM season should be particularly mindful of the outcome of the Committee's consultation, as they begin to prepare updated policies ahead of their 2017 AGMs.
The deadline for all written submissions is Wednesday 26 October 2016.