Government slammed for rejecting call to do more to tackle executive pay

Calls for further measures to rein in mammoth pay deals for company bosses have been rejected in a “missed opportunity” by the Government, according to a Commons committee.

In its response to a report on executive pay by the Business, Energy and Industrial Strategy (BEIS) Committee, the Government said it would focus on bedding in current reforms before taking making changes.

Among the committee’s recommendations were a stronger link between executive and employee pay; ensuring businesses make greater use of profit-sharing schemes; and that companies appoint at least one employee representative to their remuneration committee.

But Kelly Tolhurst, the Minister for Small Business, Consumers & Corporate Responsibility, said: “Our immediate priority is to focus on the effective implementation and then assessment of these reforms before considering any significant further changes.”

The BEIS Committee condemned the Government’s response and branded the dismissal of its worker appointment recommendation as “disappointing”.

Rachel Reeves, chairwoman of the BEIS committee, said: “The Government’s response to our report on executive pay represents a missed opportunity to rein in bosses’ pay and link chief executive pay to that of the rest of their workforce.”

She added: “The success of a business is rarely solely down to the chief executive and there should be greater efforts to ensure that workers have a share in the profits too.”

On the rejection of its employee representative recommendation, she said: “The appointment of a worker would bring some much-needed scepticism, challenge and perspective on executive rewards and help to curb some of the extravagant chief executive pay packages we have seen in recent years.”

The Government said it is “aware that several companies are already considering inviting an employee representative to attend at least one meeting of the remuneration committee each year”.

But it said it was clear that “one method will not suit all”, given the large variety of UK companies and group structures.

The Government recently introduced a package of reforms including the requirement for firms to report the pay ratio between senior management and workers, while shareholders also now have a binding vote on a company’s executive pay policy at least once every three years at AGMs.

Pay ratio reporting is voluntary this year, but will be mandatory for quoted firms in 2020.

The BEIS Committee had asked the Government to extend pay ratio reporting to all employers with more than 250 staff, and to include the lowest pay band.

But the Government said: “The Government intends to monitor the impact of this new requirement when reporting first begins next year before considering any potential extension to other types of employer or extending pay ratio reporting to include the lowest pay band.”

There has been mounting criticism that the Government’s reforms do not go far enough.

Findings from a recent study by the High Pay Centre think tank revealed that between 2014 and 2018 every single FTSE 100 company pay policy put to an annual meeting was approved by shareholders.

The research found that, of more than 700 pay-related resolutions voted on at AGMs over the same period, the average level of shareholder dissent was just 8.8%.