Theresa May attacks 'unacceptable face of capitalism'

Theresa May will announce new measures this week

Businesses who pay excessive salaries to senior executives represent the "unacceptable face of capitalism", Prime Minister Theresa May has said.

The "excesses" of some bosses was undermining confidence and "damaging the social fabric of our country", she wrote in the Mail on Sunday.

Firms that face shareholder revolts over salaries and bonuses will be named on a new public register, Mrs May said.

She also said firms could decide how workers are represented in boardrooms.

The Conservatives' manifesto said executive pay should be approved by an annual vote of shareholders.

Mrs May's article does not mention this commitment, but instead says firms that have a "shareholder revolt" on pay will be named on a new public register.

The Department for Business, Energy and Industrial Strategy said that a "revolt" would be defined as 20% of shareholder opposition.

UK trade body the Investment Association has been appointed to set up the public register, which it said would be "the world's first of its kind".

It said it would launch the register by the end of the year.

Firms named on the list would need to detail how they intend to address investors' concerns, it added.

Investment Association chief executive Chris Cummings said the register would hold the UK's "biggest businesses to account".

"The creation of the public register on shareholder voting is an important step in increasing accountability and transparency of those listed companies that see significant shareholder rebellions during the AGM season," he added.

'Symbolism'

Stefan Stern, director of independent think tank, the High Pay Centre, told the BBC: "These shareholder votes are already in the public domain, and reported by the media.

"But the symbolism of being named on a list is something that will get the attention of company boards.

"They won't want to be on this list, for as well as the adverse attention it brings, it could also make them potentially vulnerable to hostile investors."

Analysis

By Joe Lynam, BBC business correspondent

The Royal Dutch Shell chief executive Ben van Beurden saw his total pay package soar by 54% to £7m last year.

The Reckitt Benckiser boss Rakesh Kapoor took a pay cut of one third in 2016 - and still pocketed £14.6m.

But they are both dwarfed by Sir Martin Sorrell. The advertising giant WPP paid him £42m last year and £210m over the past five years.

At the moment, shareholders have a vote on these payouts every year, but it is not binding on the executive team.

Even if it were, in order to change how bosses are paid it would still need a sustained change in culture by the giant institutional investors - as they own most of the shares in listed companies.

Pension funds and banks would need to consistently vote in large numbers against the chief executive's pay and that - despite regular talk of a "shareholder spring" - has yet to happen.

Mr Stern said that Mrs May's proposals were "a step in the right direction", but that more needed to be done to address the systemic issue of high executive pay.

Mrs May said new measures - to be announced this week - would also ensure workers' voices were "properly heard in the boardroom".

She said the government will set an "expectation" that publicly-listed companies have in place an employee advisory panel, or an employee representative on their boards.

'Broken rules'

Mrs May said most of the UK's biggest businesses invested in their workforces and looked after the interests of employees and investors.

However, she said that "too often in recent years we have also seen another, unacceptable, face of capitalism".

A "minority of firms are falling short of the high standards we expect of them," she added.

"Some have deliberately broken rules that are designed to protect their workers.

"Others have ignored the concerns of their shareholders by awarding pay rises to bosses that far outstrip the company's performance."

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Earlier this year the £48m pay package of WPP's Sir Martin Sorrell was rejected by one in five shareholders at the firm.

It was the seventh year in a row that more than a fifth of shareholders voted against his pay.

In a non-binding vote last year, BP shareholders rejected a pay package of almost £14m for chief executive Bob Dudley.

This month, a report revealed the pay of top chief executives' had fallen in the past year.

However, the High Pay Centre's research said there was still "a huge gap" between the pay of the bosses of FTSE 100 companies and the rest of their staff.