August 31, 2017
UK Proposes Broad Governance Reform: Includes Pay Ratio & “Names & Shames” List
– Broc Romanek
Following up on my blog from a few days ago about UK Prime Minister’s efforts against excessive pay, the United Kingdom has now proposed specific reforms as reflected in this 68-page response to its “Green Paper.” The reforms proposed relate to three specific areas: Executive pay, strengthening the employee, customer and supplier voice and corporate governance in large privately held businesses.
The proposal waters down some of the more controversial aspects of the Green Paper (eg. binding say-on-pay votes) – but the remaining proposals are quite astounding. Here’s the ones relating to executive pay:
1. Require listed companies to report pay-ratio information annually (the ratio of CEO pay to the average pay of the company’s UK workforce), including a narrative explaining changes to the ratio from year to year and “setting the ratio in the context of pay and conditions across the wider workforce.”
2. Provide a “clearer explanation in remuneration policies of a range of potential outcomes from complex, share-based incentive schemes.”
3. Provide specific steps listed companies should take when there is significant shareholder opposition to executive pay policies and awards (which might include, for example, provisions for companies to respond publicly to dissent within a certain time period, or to verify that dissent has been sufficiently addressed by putting the company’s existing or revised remuneration policy to a shareholder vote at the next annual meeting).
4. Increase the responsibility of comp committees for oversight of pay and incentives across the company and require these committees “to engage with the wider workforce to explain how executive remuneration aligns with wider company pay policy (using pay ratios to help explain the approach where appropriate).”
5. Extend the recommended vesting & post-vesting holding periods for executive equity awards from three to five years to encourage a longer term focus.
6. Invite the Investment Association to maintain a public register of listed companies that receive shareholder opposition of 20% or more on say on pay, along with “a record of what these companies say they are doing to address shareholder concerns.”
This Cooley blog goes into detail to explain the proposed reform – and here’s a NY Times article.