UK: Proposed UK Corporate Governance Reforms Target Executive Pay Justification, Employee Engagement

Last Updated: 15 September 2017
Article by Mark Taylor and Helen Scott

The Situation : The UK government has proposed several corporate governance reforms in an effort to improve transparency and accountability in private and public employers.

The Result: If approved, the proposals would result in heightened scrutiny of executive pay, more involvement for worker representatives in large employers and an extension of corporate governance principles to large privately held companies.

Looking Ahead: The government's suggestions are only proposals at this stage. Plans are in place for secondary legislation to be approved by March 2018 with new regulations potentially coming into force in June 2018.


According to the British Prime Minister, a small number of companies have damaged the public's trust in "big business". The Government has therefore published a package of proposed corporate governance reforms with a view to improving transparency and accountability in both private and public employers. At the moment, these are only proposals, and the Government has asked bodies such as the Financial Reporting Council, the Investment Association and the GC100 to prepare advice and guidance on a number of points. The Government plans for secondary legislation to be approved by March 2018, with a view to coming into effect in June 2018 for financial years starting after that date. Further consultation may be necessary on the contents of that legislation. The headline points are below.

Executive Pay in Listed Companies

The Government proposes to require quoted companies, on an annual basis, to publish and justify the ratio of CEO pay to the average pay of their UK workforce. This is likely to affect approximately 900 listed companies. In addition, a number of changes will be made to address the concern that shareholders do not have enough power to hold to account companies that face significant opposition to executive pay.

The Government will: (i) invite the Investment Association to maintain a public register of listed companies where at least 20 percent of shareholders oppose the level of executive pay; (ii) invite the Financial Reporting Council ("FRC") to revise the UK Corporate Governance Code to specify the steps listed companies should take when executive pay policies are significantly opposed; (iii) require remuneration committees to engage more fully with the workforce and explain how executive pay reflects the wider pay policy; and (iv) reform the "poorly designed or explained" long-term incentive arrangements by, for example, extending the recommended minimum vesting period for executive share schemes from three to five years to encourage more long-sighted goals.

"Strengthening the Stakeholder Voice" Outside the Boardroom

In respect of both private and public companies of "significant size", directors will be required to explain how they have met their responsibilities toward employees, suppliers, customers and the wider society. In addition, the Government will invite the FRC to consider a requirement for premium listed companies, on a "comply or explain" basis, to adopt one of three "employee engagement mechanisms". These companies would be required to: (i) assign a designated non-executive director to represent employees; or (ii) establish an employee advisory council; or (iii) appoint a director from the workforce. The government's "initial view" is a threshold of 1,000 employees should be used to determine applicability, but this is subject to further consideration. All company directors already have a duty to promote the success of the company (s.172 of the Companies Act), so in principle a wide range of companies could be within scope. The government recognises that a proportionate approach is needed as this is a new reporting requirement.

Corporate Governance of Large Privately Held Businesses

Concerns were raised that only companies listed on the London Stock Exchange are subject to corporate governance principles. The Government has decided that this form of reporting should be broadened to all UK companies of significant size. The Government's initial view is that the threshold should be application to companies with more than 2,000 employees, but further consideration will be given to this. Companies subject to an existing corporate governance requirement (like the UK Corporate Governance Code) would be exempt. The Government will invite the FRC to develop voluntary corporate governance principles for private companies. It will also implement legislation that requires such companies to publicly disclose their corporate governance arrangements and whether they follow any formal code. The Government is considering whether to extend this principle to limited liability partnerships of an equivalent scale; large professional services firms may therefore be affected.

Boardroom Diversity

This was an issue raised in the course of the consultation leading to these proposals. The Government has decided not to act at this stage but to continue to monitor progress toward voluntary goals (33 percent of directors in listed companies to be women by 2020) as well as monitoring ethnic diversity, with a view to acting through legislation if ratios do not improve.


Three Key Takeaways

If approved, reform measures proposed by the UK government would require public companies annually to publish and justify the ratio of CEO pay to the average pay of their UK workforce.

In another provision, the Financial Reporting Council is invited to consider and consult on the introduction of a specific provision in the Corporate Governance Code that would require premium listed companies, on a "comply or explain" basis, to adopt one of three "employee engagement mechanisms".

Corporate governance principles could also be applied to large privately held companies, "with the threshold initially proposed at companies with more than 2,000 employees unless they are subject to an existing corporate governance reporting requirement."

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions