Wider workforce must be considered when setting executive pay under new corporate governance proposals

The plans revealed by the corporate governance regulator will be open to consultation until 28 February 2018.

UK public companies will be required to consider workforce pay when setting executive salaries under plans revealed by the corporate governance regulator.

The aim of the proposals, which will be open to consultation until 28 February 2018, is to encourage listed firms to take the situation of rank-and-file staff into consideration when setting renumeration levels for senior leaders.

The long-awaited proposed revisions to the Corporate Governance Code were welcomed as an important step in boosting the importance of people-based practices within companies. But they also drew criticism at the lack of firm measures to enforce pay ratios and emphasise shareholder disquiet over executive pay levels.

The plans, which were published by the Financial Reporting Council, recommend that all public companies should set up a renumeration committee comprising at least three independent non-executive directors from the start of their accounting periods beginning on or after 1 January 2019.

The committee should “oversee renumeration and workforce policies and practices, taking these into account when setting the policy for director renumeration”, the consultation document said.

A description of its work in the organisation’s annual report should also include “an explanation of the company’s approach to investing in, developing and rewarding the workforce, and what engagement with the workforce has taken place to explain how executive renumeration aligns with wider company policy”, it added.

But there was no follow-up to the government’s announcement in August that it intended to introduce wider-ranging plans to curb executive pay, including new laws to force all listed companies to reveal their pay ratio between workers and senior leaders.