With the majority of parties now having published their manifestos, what clues do they contain as to the future direction of corporate governance and executive pay in the UK?
November 25, 2019
This article is strictly apolitical – as countless polls have shown, it is impossible to predict how an election will be decided. However, irrespective of who wins (or perhaps which parties form a coalition) it is undoubtedly true that policies from one party can influence decisions of other parties.
Even more crucially, when, as in the 2017 General Election, there was general consensus over an issue (such as pay ratios or increasing worker representation) changes followed within a year.
So, what messages might we be getting from the manifestos?
In terms of the Conservative party, unlike 2017, when actions around reward and pay were specific and targeted, the current manifesto raises only one point regarding executive pay:
• “We will improve incentives to attack the problem of excessive executive pay and rewards for failure.”
No explanation is given as to what “improving incentives” means in the context of ’rewarding failure’ or as to where those incentives are aimed and it seems a strange turn of phrase given that Remuneration Committee’s receive a flat fee in respect of their work on executive pay. NEDs are not supposed to participate in incentive pay plans but could this be a veiled recognition that whilst the remit of remuneration committees has expanded, their fees have not followed suit?
Given the absence of anything more definitive, it is worth considering the Labour and Liberal Democrat manifestos.
The main point of agreement in both documents is an extension of the requirement for large UK companies (i.e. those with 250+ employees) to report more “gaps in pay”. Both parties support an extension to record Black, Asian and Minority Ethnic (BAME) pay gaps. In addition, the Labour party would extend this to include gaps based on disability reporting and the Liberal Democrats to LGBT+ reporting.
It is interesting to note that, in terms of gender pay reporting, Labour are proposing to extend the influence of government through the requirement that all large companies (listed or otherwise) will have to get government certification regarding their approach and level to gender equality.
In terms of other common policy points, both Labour and the Liberal Democrats have indicated support for a proportion of a large listed company’s shares to be held in trust for employees. We assume such measures would be settled by an issue of new shares, thus diluting existing shareholders.
The amount to be put into trust would be mandated at 10% by Labour (as previously indicated by Shadow Chancellor, John McDonnell) and, to avoid executives taking the largest share, the maximum payment receivable would be £500 per person per year.
In comparison, the Liberal Democrats are only proposing a right for workers in large companies to request that a trust is created for employees.
The other area of common interest in both manifestos is in respect of worker representation on Boards, with the Liberal Democrats suggesting that there should be one such person and Labour indicating that 1/3rd of the Board should be elected “worker-directors”.
Only once things have settled after the Election will we have a better idea of what might occur in the short term.
In terms of likely outcomes, the current Conservative government has expressed support already for BAME reporting and, therefore, it is strongly possible that this particular measure will be actively introduced within the next year.
It is more difficult to tell with the other matters. However, given the general direction of travel, it is likely that issues of pay and corporate governance will be areas in which all parties (should they need to) are likely to feel that concessions could be made.
For further information about the issues raised in this article or to discuss any questions you may have, please contact Stuart James.