The much anticipated corporate governance and executive compensation reforms being pursued in the United Kingdom are set to be unveiled next week - though with much less bite than originally expected. As reported by The Financial Times, UK Prime Minister Theresa May plans to follow through on her call for tougher pressure on board rooms and more consideration of a broader array of stakeholder groups in setting compensation and governance policy. As originally proposed in a UK government consultation, which provides a potential blueprint for government action, May sought to pursue more rigorous binding say on pay votes which require companies to get 75% support to avoid failure. The consultation also considered requiring more disclosures on annual bonus metrics. However, with the unveiling of the reforms expected next Tuesday, reports are surfacing that the tougher binding say on pay votes are no longer part of the reform package, nor are proposals to require an employee-member of the board of directors.
Despite the removal of tougher voting measures, UK companies are expected to be required to disclose a pay ratio going forward. Back in November upon the release of the proposed set of reforms which included pay ratio, the head of the UK's business regulator George Clark noted "that any new reporting measure would have to be designed carefully given that a “simple ratio” of chief executive pay to the median salary could produce “misleading results”." Given his statement, it is expected that the UK's pay ratio will differ significantly from the U.S. requirement to compare the CEO's pay to the median worldwide employee pay. Borrowing some of the framework of the recently implemented framework of the recently implemented UK Gender Pay Equity reporting requiremnets, UK companies are expected to be required to disclose the ratio of their CEO compensation to the "average UK worker". The UK-centric focus of the proposed pay ratio as well as the use of average in lieu of median will likely result in far fewer compliance issues.
While required employee representation on boards is out, reports indicate that the UK still intends to amend its corporate governance code to give workers a louder voice on the board. These reports indicate that companies will be required to pursue one of several paths to accomplishing the objective by having a non-executive director represent employees, having a workforce advisory council which would have board member access or by providing employees a board seat. While it is not guaranteed that these reforms will be included, if they are they would mark a dramatic change in the governance requirements which would have far reaching implications abroad here in the United States.