The Government seems to have responded to the collapse of BHS
and the exposure of poor working practices at Sports Direct by
issuing a consultation paper on a range of measures designed to
ensure that business behaviours are less egregious and more
accountable. Corporates are not known for their love of
Governmental interference but post 2008, this is something that
increasingly they have to get used to. Recently, larger companies,
or those with a high turnover, have had to handle a raft of new
requirements including reporting on Modern Slavery and companies
with over 250 employees are now preparing for the implementation of
the new Gender Pay Regulations in 2017.
For HR professionals, there are a few big issues in the Green
Paper. A key theme is that the Government wants to tackle the
perceived disconnect between executive pay and company performance
within quoted companies. To tackle this, the Government suggests
that a company's remuneration committee could consult both
shareholders and the wider company workforce in advance of
preparing its pay policy, allowing for a broader range of views to
be heard. The idea of the 'wider workforce' being
consulted on executive pay may not fill company board members with
joy but might it result in greater workforce engagement?
The most controversial proposal is whether companies should
publish ratios comparing CEO pay, to pay in the wider company
workforce (rather than just the median company pay as at present)
enabling comparisons between companies, sectors and whether the pay
ratio has changed over time and allowing shareholders to decide
whether pay levels are proportionate given the company's
performance. Would such a move really provide any meaningful,
measurable data? It's unclear. It's also worth
bearing in mind that this proposal only applies to listed companies
and will not apply to the majority of companies at all.
The Government still thinks that there's too much short-term
thinking within big companies and it wants to remedy this, so Long
Term Incentive Plans (LTIPs) have also come under fire. The
Government's first idea is that LTIPs are often too complex to
be transparent to investors and wonders whether 'restricted
share' awards should be awarded instead. Its second idea
is that minimum holding periods for share options should be
extended from 3 to 5 years. In a world of 'golden
handshakes' in which employers routinely compensate new
employees for the options they lost when they moved to join the
company, it's debatable what impact this change would have. The
Green Paper also suggests that bonus targets could be subject to
disclosure although it acknowledges the commercial confidentiality
issues this would give rise to.
Given the backlash from business, it is unsurprising that the
Government has completely rowed-back on its suggestion that large
UK companies should be required to have an employee representative
on their board. However, they have put forward a quite a
piecemeal array of alternatives, including that an existing
non-executive director should be designated to ensure that the
voices of 'key interested groups' including employees are
heard at board level. Would boards listen? Would this help
hold over-confident businesses to account or would this be a tick
Even if any of these measures are implemented, it's unclear
what mechanism the Government would choose: they've given the
option of the proposals being introduced by way of legislation, a
mandatory 'comply or explain' code or on an entirely
voluntary basis. The Green Paper fails to mention what would
happen if a company ignored its obligations, raising the question
of whether the planned changes have any teeth at all. Given the
current trend to 'name and shame' this is a possible option
Although there will rightly be plenty of concern throughout
boardrooms across the UK about this Green Paper, in the long run,
could consulting about executive pay and encouraging transparency
be positive for a company's reputation?
While there's a chance that making changes to the corporate
environment could help companies become an employer of choice for
today's more ethically minded employees entering the workforce
for the first time, we doubt any of the proposals would have
prevented the debacles at BHS or Sports Direct and so may be seen
as largely window dressing as opposed to driving fundamental
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As the Brexit negotiations start, one direct impact is an interest from clients and advisers looking to have flexibility in their organisational structure ahead of any legislative or other changes being implemented.
An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
Any UK companies doing business with the rest of the EU, or even just in the UK but relying on customers and suppliers who deal with the rest of the EU, should be keeping an eye out for the ramifications of Brexit.
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