On September 1, 2016 the High Pay Centre published a report by Chris Philp, a Conservative MP and member of the Treasury Select Committee, on controlling executive pay, together with an accompanying press release.
The report discusses the rise of the “ownerless corporation”, noting that fragmented shareholdings and short-term investor horizons mean that some shareholders are not exercising proper oversight of companies they own, that the market does not work if shareholders are not always responsible custodians of their capital, and that shareholder interests and the wider public interest are often not served by executives who over-compensate themselves, do not focus on the long-term or engage in unchallenged strategic initiatives, such as reckless acquisitions.
On the rise of excessive executive pay, the reports states that one symptom of the rise of the ownerless corporation is the rapid rise in total executive pay, with FTSE 100 CEO total pay in the UK now averaging £6 million per year, or 150 times average worker income. This ratio has doubled in 10 years as worker pay has stagnated. The author comments that this level of inequality is socially divisive and public opinion is firmly against it.
The report suggests three main proposals to address these issues:
- Mandatory publication of pay ratios – The report proposes mandatory publication of total CEO remuneration to median worker total pay, creating transparency and downward pressure.
- Annual binding shareholder votes on executive pay – Besides the binding pay policy vote every three years, the report proposes an annual binding vote on actual pay awards, increasing shareholder control. This is already done in Switzerland, Holland and Denmark.
- Mandatory shareholder committee with employee representative attending – The report recommends that all Main Market companies should establish a shareholder committee consisting of the largest five shareholders based on holdings longer than 12 months. The chairman of the board and a non-union employee representative should also attend meetings of this committee as non-voting but speaking members. The committee would replace the nomination committee in recommending the appointment and removal of directors to the AGM, making directors more directly accountable to shareholders, it would ratify the pay policy and actual pay packages proposed by the remuneration committee before they go to a vote of all shareholders at the AGM, and it would pose questions to the board, including on corporate strategy and corporate performance, which the board would have to respond to.
The High Pay Centre, in its accompanying press release, notes that the report has been endorsed by Lord Myners, the former chair of Marks & Spencer and City minister for the Labour government, and Neil Woodford, a prominent fund manager, but makes clear that the High Pay Centre itself does not necessarily endorse every single element of the report.
(High Pay Centre, Restoring Responsible Ownership Ending the Ownerless Corporation and Controlling Executive Pay, 01.09.16)