UK Prime Minister Theresa May warned over knee-jerk executive pay reform after Carillion collapse
Theresa May was warned today not to make knee-jerk reforms to executive pay following the collapse of Carillion.
The Prime Minister has vowed to introduce “tough new rules” on pensions after the contractors collapsed leaving a multimillion pound deficit. She also said top bosses could face fines if they fail to protect workers’ pensions.
However, the Institute of Directors (IoD) said “significant policy decisions should never be made in the heat of the moment”.
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“If the Prime Minister is serious about these proposals, there needs to be extensive consultation with involvement from industry to ensure we strike a balance that safeguards all stakeholders including current employees, pensioners and shareholders,” said Roger Barker, head of corporate governance at the IoD.
“As ever with these proposals, the devil will be in the detail – but we must ensure there are no unintended consequences that might impact the health of currently successful companies.”
Royal London’s Steve Webb, a former pensions minister under David Cameron, said the government was right to be concerned about executives putting their pay before pensions. However, he warned that policymakers will struggle to find a “silver bullet” solution.
“Every company is different, and a dividend payout which looks excessive at one firm may be quite sustainable at another,” he said. “Despite all the concern about the BHS case, nothing has so far changed, and we are probably years away from new legislation coming into force”.
The government is expected to publish a white paper in March setting out its pensions proposals. May is also considering whether to give regulators more power over takeovers that could put pension schemes at risk. Regulators may be given the ability to request more information from companies about their pension schemes.
“Too often, we’ve seen top executives reaping big bonuses for recklessly putting short-term profit ahead of long-term success,” May said, writing for the Observer.
“Our best businesses know that is not a responsible way to run a company and those who do so will be forced to explain themselves.”
She also defended public-private partnerships, which have come in for criticism after Carillon went into liquidation under the weight of billions of pounds of debt.
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