Executive rewards: paying for success | Government response to BEIS report

On 13 June 2019, the UK government published its response to the Business, Energy and Industrial Strategy Committee's report on "Executive rewards: paying for success".

The response notes that a major package of reforms to strengthen the framework within which companies set executive pay has recently been implemented in the UK, including CEO pay ratio reporting and stronger UK Corporate Governance Code provisions.

The government is of the view that the current UK framework gives shareholders the information and the powers with which to hold companies to account on executive pay.

Whilst acknowledging that the BEIS Committee's recommendations are a useful contribution to the debate on high levels of executive reward, the government said that its immediate priority is to focus on the effective implementation and then assessment of the most recent reforms before considering significant further changes.

In particular, the BEIS Committee had recommended that:

• companies should be required to appoint at least one employee representative to the Remuneration Committee. This was rejected, on the basis that that one method will not suit all companies. The recent strengthening of the Corporate Governance Code includes a requirement that remuneration reports should include an explanation of the engagement with the workforce, and one of the ways that this could be done would be by appointing an employee representative to the Remuneration Committee. The government is of the view that the range of methods adopted will become clear when reporting on this begins next year.
• the new pay ratio reporting requirement (which applies to quoted companies with over 250 employees) should be expanded to include all employers with over 250 employees. Again, no changes are to be made yet on this – the government intends to monitor the impact of the new requirement when reporting begins in 2020, before considering any potential extension to other employers.

The Chair of the BEIS Committee, Rachel Reeves MP, said that the response "represents a missed opportunity to rein in bosses’ pay and link CEO pay to that of the rest of their workforce" and that it is "disappointing the Government has chosen to reject our recommendation that workers should sit on company pay committees".

Michael Carter, Partner at Osborne Clarke LLP commented "Given that the UK Corporate Governance Code has only just been updated, it makes sense to see how the new provisions are taken forward by companies before looking to change yet again."