May suffers backlash over flagship business reform

Theresa May is facing a growing backlash over her flagship business reforms after leading company bosses and the Bank of England’s chief economist urged her to reverse plans on executive pay.

Senior finance and corporate figures, including the BoE’s Andy Haldane and GlaxoSmithKline’s chief executive Sir Andrew Witty, have rejected two of the prime minister’s main corporate governance proposals.

In a report to be published on Friday, they argue against annual binding shareholder votes on pay and the publication of pay ratios between chief executives and workers.

The prime minister set out her desire to shake up Britain’s boardrooms when she came to power in July. Her business plan is part of a broader attempt to rebrand the Conservatives as the party of low-income voters who are “just about managing”.

Yet some of Mrs May’s proposals have been criticised by business leaders at a time when relations between the government and the corporate world are already strained over Brexit.

On Monday, Mrs May offered a big concession to business when she revealed that she was abandoning her plan to put worker representatives on the boards of big companies. But that move has not been enough to fend off criticism of her wider plans.

An interim report led by the Big Innovation Centre, an independent think-tank, rejects the idea of annual binding votes, saying they would damage efforts to retain and motivate chief executives.

Instead, the report suggests that shareholder voting rules should include a clause that if a company receives less than 75 per cent support for its pay policy in two consecutive years then the vote must become binding.

The report, which includes input from academics such as Alex Edmans at the London Business School, criticises the pay ratio idea for creating misleading comparisons and perverse incentives. For example, retailers appear to fare worse using the ratios than banks or investment groups.

The involvement of Mr Haldane is likely to raise the hackles of Number 10, given tensions between Downing Street and Threadneedle Street in recent months.

Mrs May told the annual CBI conference on Monday that she was dropping the idea of workers on boards, saying that there would not be direct appointments. Instead, there might be advisory councils or panels to ensure workers were listened to.

That concession was designed to allay corporate fears but officials believe the prime minister is loath to give way on the rest of the package.

Executive pay is a matter of profound and legitimate public interest. Pay practices can encourage short-term behaviour in ways which harm both firms and the economy

Mrs May plans to publish a green paper setting out more detailed proposals on how to tackle executive pay and accountability to shareholders.

“We can’t stand still — we must continue to make improvements where these result in better companies and improved confidence in business on the part of investors and the public,” she said.

“This will be a genuine consultation. We want to work with the grain of business and to draw from what works. But it will also be a consultation that will deliver results.”

The Big Innovation Centre wants companies to adopt simpler pay structures, publish a fair pay charter, change reporting rules to provide a fuller picture on how executive rewards are linked to company performance and give shareholders more power on pay votes.

Mr Haldane said: “Executive pay is a matter of profound and legitimate public interest. Pay practices can encourage short-term behaviour in ways which harm both firms and the economy over the long term.”

Clare Chapman, remuneration committee chair at retailer Kingfisher, said: “Radically rethinking how pay can support long-term behaviour is now the imperative and this report can be a huge accelerator for boards wanting to adapt quickly.”