Business

High pay eroding trust in business, says MPs' report

BHS store Image copyright PA
Image caption MPs said the BHS pensions scandal undermined trust in corporate governance

Executive pay has been "ratcheted" up to the point where there is no credible link between earnings and performance, a group of MPs has said.

In a new report, they say that business must act on pay and diversity to address a "worrying lack of trust" among the public.

The Commons Business, Energy and Industrial Strategy Committee wants workers to have a say on pay.

Committee chairman Iain Wright said recent scandals have exposed flaws.

The report says faith in corporate governance has been shaken in the wake of scandals such as Sir Philip Green and the BHS pension fund.

The MPs want tough new measures to bring boardrooms back into line. Mr Wright said: "Executive pay has been ratcheted up so high that it is impossible to see a credible link between remuneration and performance.

"Pay must be reformed and simplified to incentivise decision-making for the long term success of the business and to pursue wider company objectives than share value."

The committee has called for businesses to simplify the structure of executive pay and put an end to long-term incentive plans.

Their recommendations include workers on the remuneration committees that decide executive pay, and for the chairs of these committees to be expected to resign if shareholders reject their proposed pay policy.

The committee has also backed publishing pay ratios annually. Other recommendations include a target that at least half of all new appointments to senior management positions in the FTSE 350 and listed companies should be women, as well as a new voluntary code of governance for private companies.

A spokesman for the Department for Business, Energy and Industrial Strategy said: "As this report sets out, the UK is already a world-leader in corporate governance, which makes this country an attractive destination to invest and do business.

"The corporate governance green paper published last year seeks to build on that reputation and consulted on options to further strengthen corporate governance."

He said the department would consider responses to the MPs' report "respond in due course".

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