Both the Conservative and Labour parties have now published their manifestos ahead of the UK general election to be held on June 8 — and both manifestos have significant implications for corporate governance and executive pay.
Asserting that “the public is rightly affronted by the remuneration of some corporate leaders”, Conservative leader and current prime minster Theresa May intends to follow through on plans to legislate for “strict” annual votes on executive pay.
May also promises that listed companies will have to publish the ratio of executive pay to broader UK workforce pay; that companies will have to explain their pay policies better; and that a Conservative government will launch an investigation of the use of share buybacks, with a view to ensuring they cannot be used to game the outcomes of executive incentive plans.
Lastly, and perhaps most controversially from a corporate perspective, worker representation at board level remains a live issue. Specifically, a Conservative government will require listed companies to either nominate a director from the workforce, create a formal employee advisory council or assign specific responsibility for employee representation to a designated non-executive director.
Broadening the representation on the board beyond shareholders (and management) would represent a fundamental change to UK governance. Similarly, Labour leader Jeremy Corbyn pledges to amend company law so that directors owe a duty directly not only to shareholders, but to employees, customers, the environment and the wider public.
On the executive compensation front, Corbyn intends to reduce inequality by introducing an “Excessive Pay Levy” on companies with staff “on very high pay”.
While many directors may worry that binding remuneration votes will result in tangled legal webs and reduce remuneration committees to lame duck status, several FTSE 350 boards have already moved on employee representation: One of transport firm First Group’s train drivers sits on its board as an employee director; Sports Direct allows a worker representative to attend board meetings; and Rolls-Royce held its first staff AGM this May.