May suffers business backlash over flagship governance reforms

Theresa May is facing a growing backlash over her flagship business reforms after company bosses and the Bank of England’s chief economist urged her to reverse plans on executive pay.

Senior finance and corporate figures, including Andy Haldane at the BoE and Sir Andrew Witty, chief executive of GlaxoSmithKline, have rejected two of Mrs May’s governance proposals.

In a report to be published today, they argue against binding annual shareholder votes on pay and the publication of pay ratios between chief executives and workers.

The prime minister set out her desire to shake up Britain’s boardrooms when she came to power in July. Her business plan is part of a broader attempt to rebrand the Conservatives as the party of low-income voters who are “just about managing”.

Yet some of Mrs May’s proposals have been criticised by business leaders at a time when relations between the government and the corporate world are already strained over Brexit.

Mrs May this week offered a big ­concession to business when she ­abandoned her plan to put worker representatives on the boards of leading companies. But that move has not been enough to fend off criticism of her wider plans.

The interim report led by the Big Innovation Centre, an independent think-tank, rejects the idea of annual binding votes, saying they would damage efforts to retain and motivate chief executives. Instead, the report suggests that shareholder voting rules should include a clause that if a company receives less than 75 per cent support for its pay policy in two consecutive years, then the vote must become binding.

The report, which includes input from academics such as Alex Edmans at the London Business School, also criticises the pay ratio idea for creating misleading comparisons. For example, retailers seem to fare worse using the ratios than banks.

The involvement of Mr Haldane is likely to raise the hackles of Number 10 given recent tensions between Downing Street and Threadneedle Street.

Mrs May told the CBI conference on Monday that she was dropping the idea of workers on boards, saying advisory councils might be better at listening to workers than direct appointments.

The concession was designed to allay corporate fears but officials believe the prime minister is loath to give way on the rest of the package.

Mr Haldane said: “Executive pay is a matter of profound and legitimate public interest. Pay practices can encourage short-term behaviour in ways which harm both firms and the economy.”

Clare Chapman, remuneration committee chair at retailer Kingfisher, said: “Radically rethinking how pay can support long-term behaviour is now the imperative and this report can be a huge accelerator for boards wanting to adapt quickly.”