A Conservative MP has proposed a “provocative” Scandinavian-style shake-up of the corporate governance of UK firms to help to curb spiralling executive pay, reports The Independent.
Chris Philp, who won Croydon South for the Tories in last year’s general election, proposes that the five biggest shareholders in large listed companies should be compelled to form a “shareholder committee” which will provide much more rigorous scrutiny of bosses’ pay packages.
The MP is taking his proposals to Downing Street next week, raising the possibility they could become a part of Theresa May’s government policy to reform the culture at Britain’s top companies.
Shareholder “nomination committees” are a mainstay of corporate life in Sweden and are seen as providing downward pressure on bosses’ pay awards there.
According to Mr Philp requiring all listed forms to establish these committees will “re-empower shareholders” and end the problem of the “ownerless corporation”.
Speaking to The Independent, Mr Philp said there was nothing “anti-free market” about giving shareholders more leverage and said that his proposals were informed by his positive experience dealing with engaged shareholders when he was an entrepreneur before entering Parliament.
The former City minister Lord Myners has endorsed Mr Philps’ proposals, describing them as a “provocative agenda to rectify the weakness at the core of modern corporate ownership.”
Lord Myners added: “They will not be universally welcomed by either company directors or fund managers because they challenge the existing order that has suited these two communities so well.”
His proposals have also been endorsed by the high-profile investor Neil Woodford of Woodford Investment Management who said Mr Philp’s proposals “represent important steps towards cultivating a more appropriate and valuable form of corporate governance”.
Theresa May spoke about her intention to tackle soaring executive pay upon becoming Prime Minister and said she would require workers’ representatives to be placed on company boards.
But Mr Philp’s proposals – published in a High Pay Centre pamphlet – would go considerably further in shaking up boardroom structures.
Mr Philp says he has been invited to a meeting with Downing Street’s head of policy next week to discuss his ideas, although he said he did not know what kind of reception his proposal would receive.
He suggests the shareholders committee should take on responsibilities for nominating directors, ratifying pay policies before they are voted on by the wider share register and interrogating the board on its strategy.
He proposes that the Companies Act should be modified to make the committees mandatory and that if a top five shareholder declines to take part the next largest shareholder should be included instead.
The shareholder would then need to explain publicly why it had refused an opportunity to join the committee.
Most shareholders on the committees would be large asset managers who control the savings of households held in pension funds.
Research by the High Pay Centre think tank shows that the average pay for a FTSE 100 chief executive rose to £5.48m in 2015, 10 per cent up on 2014.
It also found that the pay ratio between top bosses and the average UK wage stretched to 183 in 2014, up from 160 in 2010.
In a leadership campaign speech in Birmingham in July Ms May spoke of an “irrational, unhealthy and growing gap between what these companies pay their workers and what they pay their bosses”.
As well as promising to put workers on boards – common practice in German firms – Ms May said she wanted binding annual shareholder votes on executive pay and the mandatory publication of data on the pay gap between bosses and workers.
An opinion poll by YouGov last September found that 71 per cent of the public thought executive pay was too high, versus just 5 per cent who disagreed. There have also been a series of major shareholder protest votes against chief executive pay at annual general meetings this year, including at BP, WPP, Shire and Weir.
A study in 20009 found that the purchasing power of Swedish executives was the second lowest in the OECD. But Swedish companies are also highly ranked in global competitiveness surveys.
