When launching her campaign for leadership of the Conservative Party last week, the new Prime Minister made some potentially fundamental proposals around executive remuneration and corporate governance, including:
- Requirements for worker and consumer representation on company boards.
- Binding annual shareholder votes on executive pay.
- More transparency – disclosure of bonus targets and publication of "pay multiple data", revealing how much more executives earn than the average employee in the organisation.
Although the plans are inevitably light on detail at this stage, they do provide some insights into the direction of travel of the new Prime Minister in this area.
The stand-out proposal is for employee representation on boards – ironically taking the UK closer to a German model – picking up an idea put forward as long ago as 1977 by the Bullock report on industrial democracy, commissioned in the wake of the European Company Law Directive on employee participation. The report's main proposal was that in all boards of companies with over 2,000 employees, there would be a right to have representation for workers.
The fact that employee representation of this nature is even being considered does also suggest that the Information and Consultation Regulations, tipped as one of the laws liable to repeal post Brexit, may well remain in tact.
As for executive pay, it is less than three years since the government introduced new remuneration reporting regulations for directors in quoted companies, as a result of which remuneration reports now consist of an annual remuneration report and a directors' remuneration policy report. An annual binding shareholder vote on the pay policy was introduced, but with the caveat that if the policy is left unchanged, there is a vote only every three years. There is also an annual advisory vote on the remuneration report which gives details of how the policy has been implemented. If this vote is lost, this triggers a binding vote on policy the next year. The suggestion that these carefully drafted rules are to be changed so soon after their introduction will be of some concern.