UK lawmakers call on firms to overhaul pay and diversity

British businesses must overhaul their executive pay and perks to rebuild public trust following a spate of corporate scandals, UK politicians said today. 

A report by the British parliament’s Business, Energy and Industrial Strategy (BEIS) Committee said companies should publish pay ratios annually.The report also said that companies should give workers a seat on the committee that sets pay and have women make up half of all new senior and executive level appointments from 2020. Executive pay is a hot political topic in Britain after Prime Minister Theresa May campaigned to help those who voted for Brexit in protest at “out of touch” elites. Corporate scandals such as the collapse of store chain BHS, which was sold to a serial bankrupt with no retail experience, have fuelled mistrust of well-paid company bosses during a period of mediocre wage growth for most Britons. “Successful, productive and profitable companies cannot be disconnected from society,” Iain Wright, chairman of the BEIS committee, said, adding that it was now “impossible to see a credible link between remuneration and performance”. The committee’s recommendations are not binding but are likely to be looked at closely by May’s government.Today’s report singled out long-term incentive plans as lacking in transparency. These aim to align the interests of company executives and shareholders by linking pay to the performance of the firm over years. Many of the plans have been criticised for being too complex, too generous and sometimes gamed by bosses and shareholder revolts over pay have become commonplace. “Pay must be reformed and simplified to incentivise decision-making for the long term success of the business and to pursue wider company objectives than share value,” Wright said. The Confederation of British Industry (CBI) agreed long-term incentive plans could be too complex, but said banning them would limit flexibility for companies to reward executives. And the Financial Reporting Council, which is tasked with policing corporate behaviour, said it was now hoping for greater powers to hold directors to account. “The depth and breadth of the recommendations, if fully adopted, will have significant implications for the FRC’s remit, resources and funding,” it said in a statement. The Investment Association, Britain’s main trade body for the asset management firms which have voiced concern over pay and other governance-related resolution at companies’ annual general meetings, backed the report.Sky News reported earlier this week that BP had agreed to cut about £5m from chief executive Bob Dudley’s maximum pay for the next three years in a bid to ease shareholder unrest.And last week Reckitt Benckiser said Rakesh Kapoor, one of Britain’s highest-earning CEOs, saw his 2016 pay package fall by more than a third following a safety scandal in South Korea that dented its performance. Standard Life Investments, which runs funds totalling £280 billion and is one of the biggest investors in British companies, across a range of strategies, said it backed moves to get more clarity over boards’ decision-making.