The government should consider introducing a new ‘comply or explain’ requirement for businesses to assess the best route to improving employee representation and introduce a binding vote on executive pay for companies that continually fail to satisfy shareholders with remuneration decisions, according to CBI.
In its response to the BEIS Select Committee inquiry into corporate governance, CBI says companies should be required to publicly explain what steps they have taken to seek employee representation.
Options could include placing an employee on the board, appointing a non-executive director with responsibility for representing staff views, or having an employee consultation committee.
On Executive Pay, the CBI calls for new proposals to focus on tackling those few firms that persist in making payments that shareholders regard as excessive or out of step with company performance.
Based on the principles adopted in the Australia ‘two strikes’ system, shareholders would have the ability to issue ‘one strike’ through the advisory vote with a ‘second strike’ being a binding vote.
This recommendation would strengthen the 2013 reforms to the Directors’ Remuneration Regulations and would work with the current corporate governance system.
On employee representation, Paul Drechsler CBE, CBI president, thinks most companies have an excellent relationship with their employees and recognise that they are at the very core of their business success. Nevertheless, they are committed to continuously improving employee engagement, whether their staff are based just in the UK or across the globe.
Drechsler says, ‘Employees on boards is one option, but is not a silver bullet for all firms. There is no one-size-fits-all solution for giving staff greater influence, so individual companies must be able to determine the best way to effectively and transparently represent their voices.
‘Whichever model is chosen, firms must be able to publicly explain the action they are taking to make their businesses more inclusive, engaged and productive.”
Drechsler adds that, where pay does not match performance, business leaders can appear detached from society and not committed to fairness and opportunity. This is an issue of the few, where business practice simply has not kept pace with public expectations and firms recognise that they must rise to the challenge.
He concludes, ‘Investors should rightly hold companies to account over exceptional pay for poor performance. And introducing a new, additional binding vote regime would focus attention on the most concerning cases giving shareholders the teeth to truly have the final say on top bosses’ pay.’