Excessive boardroom pay risks undermining public trust in big business, the accountancy regulator has said in a report calling for a concerted effort to increase trust in the way that companies are run.
The report by the Financial Reporting Council, published on Wednesday, comes after the prime minister, Theresa May, called for businesses to be more responsible with employee representatives on boards. It said: “Pay is a sensitive issue in the UK and affects the standing of business in society.
“Unfortunately, the continuing inconsistent alignment between executive remuneration and company performance, and between the remuneration of senior executives and employees, has led to a lack of public confidence. This has taken place despite increasing regulation to improve transparency and accountability.”
The FRC, responsible for policing corporate governance codes, collated the views of chairmen and chief executives of major companies following a series of scandals, including Tesco’s accounting irregularities. The Financial Conduct Authority was criticised after it abandoned a review into the culture of banks last year.
Sir Win Bischoff, the FRC chairman, said: “A healthy corporate culture leads to long-term success by both protecting and generating value in the UK economy. It is therefore important to have a consistent and constant focus on culture, rather than wait for a crisis. A strong culture will endure in times of stress and change.”
The issue of pay is one factor highlighted in the report, which follows criticism from the Institute of Directors of the reluctance of business to tackle the issue. The IoD had warned companies that the government would resort to legislation.
Bischoff set out three issues for companies to improve culture: set a strategy that drives correct behaviour, pay staff in a way that rewards adherence to culture and assess ways in which to manage culture.
“There needs to be a concerted effort to improve trust in the motivations and integrity of business,” he said.
The FRC, which worked with other bodies, such as the Institute of Business Ethics and the Chartered Institute of Internal Auditors, intends to hold a conference on the report in September.
In an interview for the IBE, Frances O’Grady, the TUC general secretary, said employees needed to be given a voice, pointing to the disparity between the long-term commitment of staff to their company and the generally short tenures of chief executives.
