Government delivers a damp squib on executive pay

Press Release 97 – Joint Press Release from UKSA and ShareSoc

  • Bizarre move to publish register of pay offenders managed by non-independent industry fund manager body the Investment Association
  • Positive steps re Stakeholders via FRC consultation on S172 reporting
  • Retail shareholders have been ignored again.

The government’s long awaited package of reforms on corporate governance was published this morning. The main components of the reforms had already been widely ‘leaked’ to the media. This morning’s publication confirms that the proposals fall well short of those originally floated by the Prime Minister, Mrs May last year.

While Mrs May still talks about excessive pay as ‘the unacceptable face of capitalism’ the measures that are, apparently, supposed to help control future excesses have all the clinical credibility of a sticking plaster over a gaping wound. There will be no changes to the current voting regime on executive pay. The vote by shareholders at the AGM on the current year’s pay package for senior executives will remain ‘advisory’. Instead of taking firm action to strengthen shareholders’ say on executive pay the government plans to implement a system whereby The Investment Association will be charged with keeping a register of companies at which there has been a protest over executive pay by shareholders owning at least twenty percent of the stock. This move is bizarre. The proxy voting agency, Manifest, already keeps such a register. Furthermore, The Investment Association is the industry body which represents fund managers and asset managers. These are the very organisations which have recently been heavily criticised in a damning report by the Financial Conduct Authority (Asset Management Market Study – FCA – June 2017). Commenting on this proposal by the government, John Hunter, Chairman of the UK Shareholders’ Association said wryly:

Asking the Investment Association to keep a register of ‘baddies’ has all the authority and credibility of appointing foxes to keep a register of poor builders of chicken coops!

Another measure which the government is to introduce to help control excessive boardroom pay are the proposals on S172 and the need to report back to shareholders on how the board has managed the conflicting preferences of different stakeholders. This is positive and welcomed. The process of soft implementation via the FRC code may work, although ShareSoc remains concerned that the big offenders will merely nod at the code and simply ignore this. There is a greater risk of non-compliance in AIM and small cap companies, but even some notable large caps ignore corporate governance norms with impunity (Sports Direct, Glencore and potentially Saudi Aramco).

If Government truly wants change, then it should empower individual shareholders to drive change from the bottom up, as one of the few parties having a direct ownership interest in UK plc. The rights of individual shareholder need to be strengthened and restored, starting with putting beneficial shareholders’ names on the shareholder register in addition to the nominee account name. This is a pre-requisite for any serious attempt to reform corporate governance and executive pay in the UK.

Mark Northway, Chairman of ShareSoc commented: “It is sad that 2 years of consultation have produced such unambitious proposals. Pay ratios and a register of offenders maintained by the cunning foxes who run the show. Private shareholders are ignored again, their voting rights assigned to unaccountable intermediaries.

For more information, please contact:
Cliff Weight, Director, ShareSoc

Peter Parry, Director UK Shareholders Association

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