Government launches inquiry into executive pay

Wealth gap concept

The government’s Business, Innovation, and Skills (BIS) committee has launched an inquiry into corporate governance, including executive pay.

The inquiry follows corporate governance issues highlighted by the committee’s inquiries into BHS and Sports Direct.

The inquiry will examine the rise in executive pay in relation to that of other employees, as well as looking at if, and how, executive pay should reflect the value added by executives relative to more junior employees in the organisation.

The committee is seeking views on how executive pay should take into account an organisation’s long-term performance, and whether there is evidence that executive pay is too high. It will also ask how, if at all, the government should influence or control executive pay.

The scope of the inquiry will also include directors’ duties, and boardroom diversity, such as the number of women in executive positions on boards. It will also ask whether there should be worker representation on boards and remuneration committees, and what form this would take.

The committee is inviting written submissions until 26 October 2016.

Iain Wright, chair of the BIS committee, said: “Whopping pay awards to senior executives are not only vastly bigger than workers could ever expect to receive but often seem to have very little relationship to [an organisation’s] performance. While there has been some recent shareholder actions against these ever larger pay packages, can we have any confidence that the current framework for controlling pay is working?

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“As a committee, we will want to look at whether executive pay should take account of [organisations’] long-term performance and whether the government should intervene to control executive pay.”

Simon Walker, director general at the Institute of Directors, added: “The UK has long been a leader in promoting high standards of governance, with our Corporate Governance Code being copied across the world. But the reputation of corporate Britain has not recovered from the financial crisis, and there are important questions that need to be addressed on issues including transparency, executive pay and board diversity. The prime minister has made clear that company boards are in her sights, so directors must fully engage in this debate.”