When Theresa May became Prime Minister in the turbulent summer of 2016, she made a pledge that surprised many in her own party and took the wind out of Labour’s sails. She pledged more employee representation at the top of companies – in short, “workers on boards”.
Now, the Department for Business, Energy and Industrial Strategy has published its plans for consultation. And, yes, they do include “stakeholders” on boards, but also some flabby talk about strengthening corporate guidance. Depending on what the government hears from businesses, employee groups and other interested parties, we could see a revolution in the boardroom – or more of the same.
Here are the main ideas on the table:
1. Give shareholders a veto on pay
Public companies already have to subject their pay policy to a binding vote every three years, but the annual vote is simply advisory. Instead, shareholders would get the final say ever year. If enough voted against the pay package, they would effectively veto it.
Another version of this would keep the binding vote as something that happens once every three years, but allow shareholders to ask for an earlier vote in exceptional times. For example, if a company’s top team resigned en masse, shareholders could have a say on pay.
2. Penalise companies that ignore shareholders
Shareholders would not have the power to veto the annual salary, but if they did vote against it, the company could face a bigger hurdle to passing such a pay packet in future. So, for example, if the company decided to ignore its shareholders and pay the CEO gazillions in 2017, the next year it would have to find a deal that a “super majority” i.e. 75 per cent of shareholders agreed with.
3. Set an upper limit for pay
Shareholders could agree on an upper level of company pay. If the company wanted to reward the boss with a salary that was extraordinarily humungous and crossed the threshold, it would have to put this to a binding sharehold vote.
4. Toughen the existing rules
This option would simply elaborate on existing rules for public companies, but with the encouragement to listen more to shareholders before and after a vote.
5. Create shareholder committees
Many shareholders don’t take advantage of their existing powers. Establishing a shareholder committee would allow representatives to focus on the company’s strategy and directors.
Many investors no longer buy shares directly, but invest through a stockbrokers. Brokers could be asked to do more to make sure individuals know they can make their voices heard.
6. Empower remuneration committees
Big listed companies already have reumuneration committees which are staffed by independent, non-executive directors. The government wants these committees to spend more time listening to shareholders, and to be led by more experienced people.
7. Publish a pay ratio
Big companies could be asked to publish the ratio of CEO pay to wages elsewhere in the workforce (this is already becoming mandatory in the United States from 2017). This would make it easier for shareholders (and the media) to see whether the CEO’s pay was out of proportion.
8. More transparent pay
A chief executive’s pay is like an iceberg – the salary is only one part, and much of the value is discreetly buried in shares, a bonus and a pension. Companies could be asked to make it clearer what the boss has to do to get a bonus, and to make long-term pay plans easier to understand.
9. Workers on committees
Companies could be asked to create “stakeholder advisory panels” to provide a different set of perspectives to those usually heard in the boardroom. This committee wouldn’t necessarily get a say in the final decision a company made, but it could influence the discussion.
10. Ask certain directors to represent employees
This plan would ask existing non-executive directors to represent the voices of others, such as employees, in the boardroom.
11. Workers on boards
This is the plan the Prome Minister originally floated, phrased in the report as “appoint individual stakeholder representatives to company boards”. Other stakeholders, such as consumers, could also be represented. Employees could be elected, and once sitting at the boardroom table, would be expected to comply with the same rules as other company directors.
12. Ask companies to report back about employees’ interests
Large companies already have to describe how they have considered employees’ welfare. This requirement could be expanded to include other groups or be more specific.
13. Make private companies follow the same rules
At the moment, private companies don’t have to comply with the same levels of regulation as listed companies. The government is considering drawing up a new code for private companies and encouraging them to comply voluntarily (under significant pressure).
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