Pay ratio regulations will apply to large UK listed companies with over 250 employees and the first statutory disclosures will be provided from the start of 2020. Disclosures will make companies justify their pay for top bosses and account for how those salaries relate to wider employee pay.
New regulations coming into force today (Tuesday 1 January 2019) mean that, for the first time, the UK’s biggest companies will have to disclose and explain every year their top bosses pay and the gap between that and their average worker.
The pay ratio regulations will make it a statutory requirement for UK listed companies with more than 250 employees to disclose annually the ratio of their CEO’s pay to the median, lower quartile and upper quartile pay of their UK employees. Companies will start reporting this in 2020 (covering CEOand employee pay awarded in 2019).
In addition to the reporting of pay ratios, the new laws also require all large companies to report on how their directors take employee and other stakeholder interests into account and require large private companies to report on their corporate governance arrangements.
These reforms are part of the government’s action to upgrade our leading corporate governance and business environment to ensure the UK remains a world leading place to work, invest and grow a business. Reforms follow support and calls from investors and shareholders for companies to do more to explain how pay in the boardroom aligns with wider company pay and reward. The pay ratios regulations will hold Britain’s largest businesses to account for excessive salaries, while recent changes to the corporate governance code give employees a greater voice in the boardroom.
Business Secretary Greg Clark said:
Britain has a well-deserved reputation as one of the most dependable and best places in the world to work, invest and do business and the vast majority of our biggest companies act responsibly, with good business practices.
We do however understand the frustration of workers and shareholders when executive pay is out of step with performance and their concerns are not heard.
The regulations coming into force today will build on our reputation by increasing transparency and boosting accountability at the highest level – giving workers a stronger dialogue and voice in the boardroom and ensuring businesses are accountable for their executive pay.
These new regulations are a key part of the wider package of corporate governance upgrades we are bringing forward as a government to help build a stronger, fairer economy that works for businesses and workers.
Alongside the pay ratio reporting will be a new statutory duty on companies to set out the impact of share price growth on executive pay outcomes. This will provide greater clarity and for shareholders about the impact that significant share price growth can have on executive pay outcomes and whether discretion has been exercised before pay awards are finalised.
The corporate governance upgrades introduced by the government form an essential part of the UK’s modern Industrial Strategy – a long term plan to build a Britain fit for the future through a stronger, fairer economy.
A consensus is emerging that votes at work promote good corporate governance, argues Ewan McGaughey. Here he outlines behavioural, qualitative and quantitative evidence, and explains that votes at work in Britain have among the longest, richest histories in the world.
The UK is about to stop shareholders monopolising votes for company boards, with worker voice. Currently, asset managers control most shareholder votes in public companies. They have systemic conflicts of interest, because shareholder votes can influence companies to buy asset managers’ financial products (e.g. defined contribution pensions). But now this is changing. One small step, following government consultation, is that the Financial Reporting Council will write new ‘comply or explain’ rules in the UK Corporate Governance Code, so that listed companies introduce: (1) ‘a designated non-executive director’ responsible for employee engagement, (2) ‘a formal employee advisory council’ or (3) ‘a director from the workforce’.
The 2017 Building Public Trust Award for Corporate Governance Reporting showed there is some very good governance reporting in the FTSE 350, but it also confirmed that there is a relatively small group of companies that are consistently ahead of the pack – and not all of them FTSE 100 companies, it should be noted. However, there are still too many very similar looking governance reports where much of the content could apply to any company.
What the really good reporters have been doing for a number of years is to shift the focus of their reporting away from just describing the governance processes and procedures. Instead their priority is to show how those processes and procedures have been applied. So, for instance, if there has been a major corporate development in the year – like M&A activity or changes to strategy – the governance report gives an insight into how the board and its committees were involved. Good ways to do this include case studies or the chair’s introduction to the governance report. The governance process can also be discussed alongside the disclosures of the event itself, with appropriate cross-referencing from the governance report. The key is to show what outcomes were achieved through the governance processes and, therefore, what value they added.
When I am not presenting or facilitating, or meeting clients, I mainly work on my own.
Increasingly I have been concerned about my effectiveness. It seems to take a very long time to get things done – particularly writing proposals.
But time does seem to just drift away, so easily.
The interesting experience has been that in the last week or so I have spent an intensive seven days writing a proposal for a large UK government grant. In fact, I did not even write it. I edited it. This work was done pro bono for a social enterprise that I am associated with.
What was so interesting was that working with the founder of the organisation it was as if I was employed again. Suddenly, it was not that time was disappearing, but that I was working really hard.
Because I was working with someone else, I was reminded how much work goes into a proposal. And I now value work on our own proposals much more highly.
In my early days as an entrepreneur, I established several publications in partnership with an editor. We learned that it could take two days for two of us to write an important letter.
Who was it who is reputed to have sent a letter with this comment “I am sorry that this is a long letter; I did not have time to write a short one.”?
Our first publication was a transport policy newsletter that we produced over very long weekends once a month. This was before the invention of the PC personal computer and the laser printer. We had a Tandy computer, 64k memory, original very floppy floppy disc and no hard drive. We printed out with a daisy wheel printer, then photo reduced the galleys, cut them up and laid out the newsletter with Pritt Stick. Then I printed the newsletters on an A3 photocopier, which was not designed for long runs of airmail paper printed on a second side, and frequently jammed.
It was a real kitchen table business. But it was sent internationally.
Once we were established, people would come up to us at conferences, congratulate us on the newsletter and ask us how many people we had working in our editorial and production teams.
Their perception was quite different from our reality. Or was our perception actually out of line with the success that we had created?
The pity was that we had set the pricing to match our perception – not the market’s.
A coach’s role is to help our clients raise their awareness. Often this involves us in helping people recognise the reality of their success and to appreciate their talent.
Then they are more likely to concentrate their efforts in the most productive ways.
Perhaps we also need to do the same for ourselves. My filters are now much more attuned to hearing people complimenting me on my ability to help them structure and clarify their thinking.
Were they always saying this? Or have I helped them recognise it now that I have clarified it in my own thinking.
“If we put bits into the mouths of horses to make them obey us, we guide their whole bodies. Or look at ships; though they are so large that it takes strong winds to drive them, yet they are guided by a very small rudder wherever the will of the pilot directs.
“So also, the tongue is a small member, yet it boasts of great exploits.” St James
Jeff Bezos sells more books than anyone on the planet. In fact he has probably sold more books than anyone else has ever sold, even though he only started in 1994.
So, what books does he recommend? In the summer of 2013 Bezos hosted three all-day book clubs for Amazon’s top executives, using three books as frameworks for sketching out the future of the company.
Of course, I wanted to know what they were – and whether I had read them? Well, the answer is yes, but!
Here they are:
The essence of the book is the theory of constraints; it is about managing a whole process rather than managing individual processes for maximum output. Just like a chain is only as strong as its weakest link, a process only has the capacity of its smallest section – which acts as the critical constraint on the flow.
It is definitely on my recommended list.
Now I must read it, for my own satisfaction and so that I can describe it to you; it is only 144 pages.
This book I have not read, nor previously heard of.
However, Andy Grove of Intel has. Here is what he says about it:
“In The Innovator’s Solution, Christensen and Raynor address the holy grail of all organizations: how to generate growth and sustain it over long periods. Avoiding the temptation to provide simplistic formulas, they guide the reader through carefully constructed frameworks that teach how to think about the issues that limit – and provide – growth to organizations.”
What are the three books I would recommend?
Until now AIM companies have been exempt from the need to create and maintain a PSC register, however, this exemption no longer applies and AIM companies are now required to create and maintain a PSC register, and must file PSC information with the central public register at Companies House.
You can find out more in this article from The International Law Office.
The Nigerian Communications Commission (NCC) says it has started an aggressive enforcement of the agency’s codes of corporate governance to address customers dissatisfaction. [MORE]
Some years ago a friend introduced me to the saying “Trust in God and tie up your horse.” Since I have been working in the Middle East, I have come across the equivalent: “Tie up you camel and trust in Allah.”
Another friend of mine used to bless the wine by saying “Fruit of the vine and work of human hands.”
I like the concept that our achievements are a combination of our internal and eternal lives.
The movie “The Secret” has swept the world and introduced many people to the concept of manifesting. Many people have criticised it because it fails to mention that, as well as setting your outcomes, you must also do something about them.
Personally, I think that it did not sufficiently stress the extent to which we need to cleanse our thoughts and emotions in order to be open to attract and notice opportunities and benefits. But, nonetheless, some action is likely to be involved.
I have been much concerned recently about the tying up your horse part of the deal. What should I be doing? And, what might I be missing if I focus too much on doing, becoming too task oriented?
Story of the man in the flood
There is a story that would be quite timely in Australia, or last year in Pakistan.
A policeman called on a man in his home to warn him that the river level was rising and that his house would be flooded. He should gather a few things and leave immediately.
“No need,” he replied. “I trust in God. He will save me.”
The flood did come and the man had to move upstairs into a bedroom. A boat came along and approached the man at his window. “Please come with us, the water level is still rising.”
“No need,” he replied. “I trust in God. He will save me.”
The water level rose further and he had to climb onto the roof. Eventually he was clinging to the chimney with water lapping at his feet.
A helicopter flew overhead and lowered a rescuer. “Please grab onto me and we’ll winch you to safety.”
“No need,” he replied. “I trust in God. He will save me.”
The water level continued to rise and the man drowned.
Having been a good man during his lifetime, he went to Heaven and was welcomed by St Peter at the Pearly Gates. “Welcome to Heaven” St Peter said. The man replied “Welcome indeed! I should not be here; I trusted in God but he did not save me.”
“What do you mean?”, St Peter said. “We sent a policeman to warn you, but you ignored him. We sent a boat to save you and you refused it. We sent a helicopter to rescue you and you refused that, too.”
“What else could we have done for someone so stubborn? Welcome to Heaven.”
You can find 100 other teaching stories in my book “Stories from a Corporate Coach“.
What a pleasure at a crowded networking meeting organised by www.nonexecutivedirectors.com to be approached by someone I had never met to say that she was enjoying my book 😉