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U.K. to List Companies with Pay Packages Opposed by Investors

Investors’ concern over boardroom pay has led to a series of reforms by the U.K. government.

  • Joe McGrath

Companies that saw more than 20 percent of investors voting against pay packages for board members will be named and shamed in a new corporate governance public register in the U.K.

Britain’s Department for Business, Energy and Industrial Strategy announced the register on Tuesday along with other plans for new laws that the government is hoping will increase public trust in big business. It will be policed by the Investment Association, a British trade group which represents the interests of asset managers.

The announcement proved timely for investors. A day earlier, the Pensions and Lifetime Savings Association released the results of a survey that found 84 percent of pension funds are concerned about the pay gap between staff working at the coal face and those in the boardroom. The survey of 53 pension funds, representing £800 million ($1.035 billion) in assets, also showed that 86 percent of pension funds believe executive pay at public companies is too high.

“This public register will help sharpen the focus on the those who must do more, enabling our members to hold the country’s biggest businesses to account and leading to better-run companies,” Chris Cummings, chief executive of the Investment Association, said in a statement. “We look forward to working with government to deliver the public register and aim to launch it later this autumn.”

Executive pay has been a top issue for pension funds and asset managers in governance reports in recent years. Between January and July, six FTSE 350 companies withdrew their pay proposals because of pressure from asset management firms.

[II Deep Dive: Fund Firms Turn Up the Heat on Executive Pay — and It’s Working]

One of the most vocal investment houses in the U.K. has been Royal London Asset Management, which manages £106 billion in assets, including £20 billion in listed equities.

Mike Fox, head of sustainable investments at RLAM, welcomes the U.K. government announcement, but warns that any new measures need to go beyond what the fund management industry has already achieved.

“The current system does seem to be working: shareholders have become more proactive, the vast majority of companies have responded appropriately and chief executive pay has fallen by almost 20 percent this year,” he said in a statement.

The U.K. government plans to force listed companies to reveal the pay ratio between bosses and workers, which means about 900 companies will have to report the figure annually, according to its announcement Tuesday.

RLAM’s Fox said the ratios could prove misleading.

“We don’t think that forcing listed companies to reveal the pay ratio between bosses and workers will be meaningful,” he said. “It will show large discrepancies between sectors depending on the nature of the workforce and the results could easily be manipulated.”