The PM's fat cat pay reforms don't live up to expectations

Theresa May wants public pay ratios and for boards to pay lip service to worker representation. A governance revolution it ain't.

by Jack Torrance
Last Updated: 29 Aug 2017

Much has happened since Theresa May emerged victorious in the Tory leadership contest less than 14 months ago. Fans of political drama might have enjoyed the prime minister’s shock failure to secure a majority in June’s general election. Those clamouring for change in the nation’s boardrooms have had a less fortuitous year. 

May kicked off her candidacy for prime minister with a pledge to ‘make the economy work for everyone’ by tackling problems with Britain’s corporate governance system and soaring executive pay:

The people who run big businesses are supposed to be accountable to outsiders, to non-executive directors, who are supposed to ask the difficult questions, think about the long-term and defend the interests of shareholders. In practice, they are often drawn from the same narrow social and professional circles as the executive team and the scrutiny they provide is often limited. If I’m prime minister, we’re going to change that — and we’re going to have not just consumers represented on company boards, but employees as well.

- Theresa May in The Times, July 11, 2016

At the time, the proposals were seen as bold and controversial ('Fans of the status quo, look away now,’ wrote MT). But since then it’s become clear those ambitions have been watered down. Today we found out the specific actions the government now plans to take, and they're not exactly radical.

Putting workers on boards always seemed like a pipe dream. It’s normal in Germany but would represent a massive shakeup of the way Britain does business – and another cause for uncertainty at an already tumultuous time.

Instead the government wants to ensure ‘employees’ interests are better represented at board level’ by requiring firms to either assign a non-executive director to ‘represent’ employees (whatever that means), creating an employee advisory council or, if they do want to, nominate a director from their workforce. And that’s on a comply-or-explain basis, meaning businesses don’t have to do it if they’ve got a half-decent excuse. 

Perhaps more significant are May’s plans to tackle so-called ‘fat cat’ pay. The PM has shied away from giving shareholders an annual binding vote on bosses’ pay packages. But she will force the largest listed companies to publish the ratio between CEOs and their average workers’ salaries. It’s a blunt instrument, but campaigners hope it will shame bosses into taking less bloated pay packets.

The Institute of Directors’ boss Stephen Martin has called the proposed reforms ‘pragmatic’, and they’re certainly that. But those hoping for something more substantial will probably prefer the Trades Union Congress’s description: ‘Feeble.’

Image source: World Economic Forum

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