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Theresa May’s pay proposals : Business leaders challenge

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Published: 06:33 GMT, Nov 25, 2016 |
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Theresa May’s attempt to reform corporate pay and governance faces more challenges from business leaders. A report by the Big Innovation Centre¬†rejects holding annual binding votes on pay and the publishing of pay ratios between chief executives and workers.

The two ideas were among the prime minister’s suggestions to address public unease about executive pay. This week, Mrs May was forced to reject claims she had watered down plans to put worker representatives on boards.

The prime minister set out her intention to strengthen corporate governance when she came to power in the summer. But some proposals have drawn criticism.

Friday’s BIC report – whose authors include Bank of England chief economist Andy Haldane and Kingfisher non-executive director Clare Chapman – argues that action on pay is certainly needed to change executive behaviour and “to rebuild trust”.

But the report says that binding votes and pay ratios are the wrong way to do it, and would damage efforts to motivate and retain chief executives.

“Pay ratios do not lend themselves to valid comparisons between companies, even within the same industry,” the report says. “Pay ratios may lead to pay being decoupled from performance.”

And on the issue of binding votes, the report says: “Theresa May, in a speech prior to becoming Prime Minister, indicated that there should be binding votes on executive pay. This has been interpreted by some as annual binding votes on pay outcomes, and policy proposals have been prepared by at least one Member of Parliament on this basis.”

The report argues that annual binding votes would be a “disproportionate response… and would be likely to have many negative unintended consequences”.