Holding the “Fat Cats” to account - Richmond House Wealth Management

This week saw the Government publish its proposals on corporate accountability.

In particular, it will require publicly listed companies to disclose the ratio of their chief executives remuneration to that of their average paid employee. It will also require companies whose executive remuneration policies are opposed by 20% or more of shareholders to be entered on a list in a “name and shame” exercise.

Theresa May has long had “fat cats” in her sights. During her campaign for leadership of the Conservatives, she proposed legal controls on executive pay and compulsory worker representation on company Boards as a way of reducing the excesses that she believed contributed to inequality and lack of transparency. Surprisingly, neither of these has made it as far as the proposals being published today.

So, what will we learn from these proposals if they are implemented without change? Frankly, not a lot.

We already know that the ratio of Chief Executive to average worker pay for FTSE 100 companies is around 120 to 1. And what will knowing that figure mean for us? Will workers be marching up to their immediate boss to demand an increase in pay (or, much less likely, a reduction in pay for the Chief Executive)? Will we, as consumers, change our habits if we perceive someone as being overpaid? Neither seem very likely to me.

One of the problems is a figure in isolation is just a figure. We may only know if the boss of Tesco is overpaid if we have the figures for Sainsbury, Morrisons, John Lewis, Aldi and Lidl too. And will we genuinely change our shopping habits because of this one factor? Isn’t (in this case, at least) supermarket location and range of products much more of a factor in how we spend our money?

Industry specifics will also distort figures. Take the scenario of investment banking. With very high average salaries (once bonuses etc. are taken into account), the ratio of the chief executive’s pay to that of the average worker may be significantly lower than, for example, Gregg’s. Does that make the (probably) eight figure salary of the investment banking chief more deserved that his/her counterpart at Gregg’s?

And these rules only apply to UK companies. We certainly won’t know equivalent figures for Google, Amazon, Microsoft, Apple, Nissan, Ford, Panasonic etc. etc.

And then there is the shareholder opposition proposal. If 20% or more of shareholders oppose the company’s remuneration proposals for their executives, their names will be entered on a public register for all to see.

Again, this will not come as any kind of revelation. The media already highlights cases where this arises. Therefore, we know that if the proposals were law today, there would be 7 companies named on the list.

So, at best, the Government proposals will produce an aggregator. A single place where we can go to find out information already in the public domain. Will that increase transparency and bring pressure to bear on companies to reduce inequality?

And what drove these proposals? In a couple of words, Philip Green. His actions at BHS produced the usual “something must be done” response. But I can’t see how today’s proposals would, in any way, have reduced the likelihood of what transpired.

Arguably, these proposals demonise entrepreneurs. With Brexit on the horizon the timing of this proposal is unfortunate. We should be making job creating business people welcome not putting barriers in their way.

If Government feels the need to act on this then the correct route is to further empower shareholders. They have a far more successful track record of delivering value than government regulation. Government should also be more respectful of their language. We fawn over sports and film stars for how they entertain us yet show disdain for leaders of our global companies that create true wealth for the nation.

Peter Murphy Dip PFS

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