Data driven management consultants

UK Government’s Tough New Rules on CEO Pay

With executive compensation continually in the headlines and with Say on Pay seemingly having minimal impact on tempering executive pay packages, regulators in the UK are looking at new measures to limit the amount a public company C-suite executive can get paid.

A raft of wide-ranging measures had been proposed by the government back in June, including providing shareholders with a binding say-on-pay vote. The rules are greatly watered down from the initial proposal but still contain several measures that will make life challenging for senior executive teams.

The UK government has announced measures to rein in executive pay. Some of the plans discussed previously have been dropped – as various sources recently predicted – but others have been confirmed as going ahead.

Perhaps the two most controversial measures are the CEO pay ratio and the “Name and Shame” list. The pay ratio legislation will look very similar to that proposed in the US and will require public companies to disclose the difference between CEO compensation and that of the “average” employee. Secondly, the Investment Association (IA) will be responsible for monitoring all annual meetings in the UK and publicly naming all companies that receive 80% or less on a say-on-pay vote. Presently, many companies manage to fly under the radar with respect to significant resistance to pay practices and low results typically are not heavily marketed. This could change if IA starts using mainstream media to publicize all companies that fall below the 80% threshold, thus further shining a light on pay at those companies.

Only time will tell if the new measures result in reductions in CEO pay, but one thing is certain – the reforms will shine an even brighter spotlight on executive compensation and intensify debate over appropriate pay levels and paying for performance.