1. Government Green Paper on Executive Pay and Corporate Governance, November 2016
Jane Williams

2. UK has world leading corporate governance, based on four pillars
Company and financial markets law coupled to:
Accountability and transparency
Unitary Board System – Directors collectively responsible for board decisions
UK Corporate Governance Code – stewarded by the FRC
What are current governance challenges?

3. Focus on three areas for improvement
Executive Pay
the impact on society balanced with developing talented leaders and the economy
Strengthen the stakeholder voice in the Boardroom
employees, customers and suppliers
Extend corporate governance into UK’s largest private companies

4. CEO Pay Growth
This growth in total stems from the value of the annual bonus and LTI
The FTSE 100 stock market indices hovers about from
Difficult to judge the link to individual company performance: needs detailed analysis
Other countries with a similar problem: US, Australia, Sweden, Swiss, France, Belgium, NL

5. EXECUTIVE PAY 2013 Executive Pay Reforms
Binding vote every 3 years on remuneration policy
Advisory vote every year on actual pay awards
Applicable to companies listed in the UK, EEA and NY

6. EXECUTIVE PAY 2013 Executive Pay Reforms
93% acceptance of remuneration policy by shareholders, 1 binding vote lost and 6 advisory.
28% shareholders not voting due in part to nominee accounts/proxy votes
% companies disclosed measures, some retrospective, of which 70% bonus targets
2016 CEO pay restraint, FTSE 100 2% median increase

7. EXECUTIVE PAY
Context
Need to attract and retain the talented executives – an important dynamic
Economic growth a necessity – avoid a ‘burden of regulation’
Disconnect between rate of increase in executive pay related to corporate performance and average earnings
Significant public concern
Institutional investors now influencing with remuneration principles
Government recognises the need for flexibility to allow companies to set their own policy.

8. EXECUTIVE PAY PROPOSALS
Strengthen shareholder voting rights – annual binding vote
Greater shareholder engagement on pay – shareholder committee
Strengthen role of Remuneration Committee with consultation/knowledge
Further transparency on pay – CEO pay ratio to Executives and employees.
Effectiveness of long term incentives – future direction
Comprise 1/3rd total remuneration of CEO package formerly 5%
Proxy almost standard measures TSR/EPS, issues over long term value/ control
Scheme length too short at 1-3 years, perceived as complex

9. Strengthening the employee, customer and wider stakeholder voice
Stakeholder Definition and Processes
Stakeholders are primarily employees, customers, and suppliers
Establish Stakeholder Advisory Boards (with reporting requirement)
Designated NEDS to represent voices of key interest groups
Appoint individual stakeholder representatives to company Boards
Increased disclosure and reporting on stakeholder interests

10. Strengthening the employee, customer and wider stakeholder voice
Further options
Who is responsible for the development and execution of this new culture?
Chairman, Remuneration Committee, CEO, HR Director
Consider:
Designated NED for stakeholder group, coupled to an advisory panel and reporting
What is the right action to implement?
Legislation, change to CG Code or both, or Industry led voluntary approach with FRC guidance and advice
Consider impact of pensioners as stakeholders and more diverse Boards on outcomes

11. ‘To Corporate Govern or not to Corporate Govern
‘To Corporate Govern or not to Corporate Govern?’ Large privately held businesses
Background
Ownership and control are intertwined so different standards.
Defining good governance not owner/manager relationship
A privilege from limited liability that the company is well run
Currently three sources of governance in the UK: the FRC and Corporate Governance Code, the QCA and the IOD
What are the right criteria for defining inclusion within a governance framework?

12. ‘To Corporate Govern or not to Corporate Govern
‘To Corporate Govern or not to Corporate Govern?’ Large privately held businesses
Options
Apply enhanced standards of governance more widely
Extend FRC CG code though might not be applicable
FRC or IOD prepare a separate bespoke code supported by best practice principles, any adoption to be voluntary
Apply standards of governance more consistently
Different bodies, FRC, QCA, IOD prepare governance now includes BCVA PE companies
In future governance apply to size of company, e.g. employee numbers rather than legal entity.

13. Summary Corporate Governance
Future Direction
Defining the problem
Agreeing any resolution
Effective execution