17 February 2017

Update

Strengthen shareholder power to curb excessive executive pay

Shareholders should be given more powers to have the final say on executive pay, says CBI's response to the Government's consultation on corportate governance.

Strengthen shareholder power to curb excessive executive pay

In its response to the Government’s consultation on corporate governance, the CBI has said that there has never been a more important time to build public trust in business.

Main CBI recommendations include:

  1. Executive Pay: A binding vote regime should be triggered if a company either loses the shareholder advisory vote on remuneration outcomes or has faced a significant vote against this resolution in two consecutive years
  2. Pay ratios: Must focus on the trends within a company’s UK workforce - showing how the variance between executive pay and average worker pay is changing over time
  3. Stakeholder voices: Companies should be able to take a tailored approach but required to report how they are engaging with and taking action on behalf of their stakeholders
  4. Private companies: Businesses of sufficient scale – over 1000 employees - should be subject to high standards of corporate governance. Government should measure its approach against several key tests – proportionality; avoiding duplication and creating a tailored approach.

On corporate governance, Paul Drechsler CBE, CBI President, said:

“Good corporate governance is an essential ingredient for trust between business and society. But we know from recent events that many people feel business plays by a different set of rules. So whether it’s on executive pay or listening to key stakeholders, we know we need to do more.

“At the CBI, we’ve been listening to our members and two points are raised time and time again about the Government’s proposals. Firstly, businesses get it. They want to make progress now and take action on reward, reputation and the value of business in society. And secondly, many are already scrutinising how well they measure up.

“It’s not just about the rules we play by, it’s about leadership. We as business leaders know that it’s about our behaviours and the actions we take. Now is the time for us to stand up and show great leadership in these changing - and challenging - times.”     

On Executive Pay, Paul said:

“Executive pay has become a lightning rod for public discontent. The CBI is absolutely clear that the unacceptable behaviour of the few does not reflect the high standards and responsible behaviour of the vast majority of companies.

“Our proposals seek to address some of the issues that have undermined the reputation of business. Where CEO pay has become disconnected from performance, shareholders should have the power to show the company a ‘yellow card’.

“Firms that lose their advisory vote on pay or receive 25% or more vote against the directors’ remuneration report for two consecutive years, should face a binding vote on policy at their next AGM.”       

On pay ratios, Paul said:

“There has been much debate about pay ratios and the potential for them to be misleading, for example where comparisons have been made between investment banking and retail.

“But transparency and openness help build trust. That’s why the CBI is recommending that any pay ratio publication should focus on the trends within a company’s UK workforce - showing how the variance between executive pay and average worker pay is changing over time. This way, pay ratios may provide meaningful transparency and value to this debate.”

On stakeholder voices, Paul said:

“We all know that the most successful companies are great at listening to and learning from their customers, employees, suppliers and communities. They have the best relationships and this gives them a competitive advantage.

“Companies are trying to improve by considering different options. Some are exploring the creation of board subcommittees, while others are looking at how to involve stakeholders in their annual corporate governance activities. A desire for high standards and competition are driving the right behaviour.

“Mandating a single option would stifle this, and not solve the problem. Instead, companies should still be required to explain how they’ve listened - and acted upon - the views of their employees and other stakeholders.”