theresa-may

A report by the Big Innovation Centre backed by company bosses that opposes government proposals on pay ratios and annual binding shareholder votes to rein in excess boardroom pay.

The two ideas were among the prime minister’s suggestions to address public unease about executive pay.

Theresa May’s attempt to reform corporate pay and governance has faced more challenges from business leaders. May was forced to reject claims she had watered down plans to put worker representatives on boards.

The prime minister set out her intention to strengthen corporate governance when she came to power in the summer, but the proposals have drawn criticism.

The BIC report argues that action on pay is needed to change executive behaviour and “to rebuild trust”.

But the report says that binding votes and pay ratios are the wrong way to do it, and would damage efforts to motivate and retain chief executives.

And on the issue of binding votes, the report says:

“Theresa May, in a speech prior to becoming Prime Minister, indicated that there should be binding votes on executive pay. This has been interpreted by some as annual binding votes on pay outcomes, and policy proposals have been prepared by at least one Member of Parliament on this basis.”

The BIC is backed by leading companies, academics and consultancy firms. Contributors to its research include Sir Andrew Witty, chief executive of drugs giant GlaxoSmithKline, Prof Alex Edmans, a corporate governance expert at London Business School, and Vincent de Rivaz, chief executive of EDF Energy.

The recommendations by the names included in the report include measures for “simpler pay structures”. Instead of traditional performance-related pay and cash bonuses, the report calls for more use of share awards stretching over 5-7 years.

There should also be more transparency in how pay is set and more consultation with employees to explain how and why the remuneration is set, the report says.

TUC General Secretary Frances O’Grady said:

“Once again bosses in the boardroom think they can get away with things that ordinary people can’t.

“Theresa May must stand up to elites who don’t live in the real world of pay freezes and economic uncertainty, and do what’s right for everyone who works hard. And she must keep her promise to mandate worker representation on company boards, so that working people get a say on executive pay.”