Executive Pay

Thank you for contacting me about executive pay.

The Government has announced its plans on corporate governance reform following a thorough consultation process. A key focus of these reforms will be to increase transparency around executive pay and shareholder control over it.

Previous reforms introduced by the Government in 2013 have gone some way to strengthening and increasing transparency in the UK executive pay framework, in particular the requirement to gain shareholder approval for executive pay policies every three years and the need to disclose the pay of each director as a single figure. However, I appreciate that executive pay has continued to be a key factor in public dissatisfaction with large businesses and a source of frustration to UK investors.

That is why action is being taken which will address concerns that a minority of companies are not responding adequately when they encounter significant shareholder opposition to executive pay proposals. Under new measures the Investment Association will name listed companies on a public register if 20% or more of their shareholders oppose proposals for executive pay package.

In addition, the Government will require listed companies to reveal the ratio between CEO pay and the average pay of their UK workforce. At the same time, remuneration committees will be required to engage with employees to explain how pay at the top relates to wider company pay policy. The Financial Reporting Council has also been asked to revise the UK Corporate Governance Code to extend the recommended minimum vesting and post-vesting holding period for executive share awards from three to five years to encourage companies to focus on longer-term outcomes in setting pay.

As the consultation findings highlight, the reforms introduced in 2013 already give shareholders sufficient power and oversight over executive pay and average executive pay increases have been broadly in line with inflation since then. The Government considers that further new powers in this area are unnecessary, given that only a relatively small number of companies have experienced significant shareholder dissent on pay in recent years.