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MPs highlight credibility gap as they urge reforms to executive pay


A view of Canary Wharf, London

A view of Canary Wharf, London

A view of Canary Wharf, London

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

The Business, Energy and Industrial Strategy (BEIS) select committee is now calling for a crackdown on excessive remuneration as part of a widespread review of corporate governance.

A new report by the committee says faith in corporate governance has been shaken in the wake of scandals such as Sir Philip Green and the BHS pension fund, as MPs back tough new measures to bring boardrooms back into line.

Committee chairman Iain 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 remuneration committees 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.

"The collapse of BHS highlighted the flaws in damage which private companies can do," said Mr Wright.

"The UK corporate governance system is recognised throughout the world as of high quality.

"However, recent scandals and the issue of executive pay have undermined public trust in corporate culture.

"That, together with rising stakeholder expectations, changing business models and technology, means that corporate governance needs to evolve to provide assurance to investors and wider society."

TUC general secretary Frances O'Grady said: "British people are fed up with the bad behaviour of big business.

"Workers are getting a raw deal, and our economy is harmed by short-term thinking in the boardroom.

"Reform is badly needed, and the Government should take up many of the excellent ideas in this report."

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.

"We are considering the responses to this consultation and will respond in due course."