U.K. reforms bring workers’ voices to corporate boards

Changes Canadian regulators are watching

The United Kingdom is stiffening the rules large companies must follow in an effort to rein in executive pay and bolster the input of ordinary employees in the running of their firms.

On Tuesday, the government outlined a series of changes. Large publicly-traded companies will have to report annually the ratio of CEO pay to the average pay of their U.K. workforce.

The rules around an existing requirement for shareholders to vote on executive pay will also be tightened.
Canadian regulators watching

U.K. corporate governance rules are already more stringent than those in Canada. And observers here say the changes will put additional pressure on Canadian firms to open executive compensation to more scrutiny.

“This is the way the world is going,” said Richard Leblanc, associate professor of governance, law and ethics at York University. “Canadian regulators will absolutely take note of this, and Canadian companies will need to too.”

As well, the U.K. rule changes demand that corporate boards give greater voice to employees at the boardroom table. It’s something that recently became an issue in Canada, when Sears Canada laid off employees without severance, while executives of the insolvent company were offered retention bonuses.

[ … ]

Say-on-pay votes

Since then, so-called say-on-pay votes have become mandatory in jurisdictions including the U.K., the U.S. and Australia. In Canada, the Institute for Governance of Private and Public Organizations reports that 80 per cent of the largest companies have voluntarily adopted the practice, subjecting executive pay to an annual shareholder vote. But those results are not binding. Dr. Leblanc said that if Canada is to strengthen rules, this would be a logical place to start.

Read more