PwC welcomes the Green Paper on Executive Pay and Corporate Governance Reform

Published at 13:44 PM on 29 November 2016

Fiona Camenzuli, partner in PwC’s Reward & Employment team, said:

“Two thirds of people think executive pay is too high, so we support the Government’s intent to help rebuild trust and strengthen accountability in this area. Enhanced shareholder powers and engagement, greater focus by boards on pay fairness, appropriate employee and stakeholder voice in the boardroom, and making pay plans simpler and longer term can all contribute to making pay work better to support the long-term performance of UK companies. The Green Paper presents a wide range of sensible options and we encourage a robust debate, based on evidence, to determine the right policy proposals.”

Commenting on proposals for companies to disclose pay ratios

“We think the best way to achieve greater pay fairness is to introduce a Fair Pay Charter, which will cover a broader range of pay decisions and will require Boards to engage with their employees. While publishing pay ratios might be the right decision for some companies, there is a danger that it could lead to misleading and unhelpful comparisons across companies. For example, comparing pay ratios between a hospitality company and a bank will offer little actionable data and is unlikely to lead to any real change. A Fair Pay Charter, with a requirement to engage with employees, should create the right incentives for Boards to address the fairness question.”

Commenting on proposals for enhancing shareholder powers

"We believe the current system of binding and advisory votes gives shareholders the powers they need in most instances. Reform should be focussed on the small number of cases where companies either lose a vote or achieve consistently low levels of support. We support an escalation approach where additional binding votes are introduced for companies either losing a vote or getting consistently low levels of support."

Commenting on proposals for long-term incentives

"It is crucial that incentives are designed to support long term behaviour. The best way to ensure this is to design plans that make executives become significant shareholders for the long term, and which would ideally be simpler. However, there is more than one way to achieve this, and any policy developments should encourage the development of principles rather than to straitjacket designs."

Commenting on proposals for stakeholder representation on Boards

"Boards do need to make sure that they are obtaining appropriate input from a range of stakeholders including employees. However, we do not think that there is a single way of doing or that it should be necessarily achieved within the existing UK unitary board structure, which on the whole has been successful. For some companies employees on boards may be the route to achieving this objective. But for others, a form of stakeholder committee may be more appropriate. Boards already have an obligation to have regard to views of a wide range of stakeholders - but they need to do more to demonstrate they are doing that."

Commenting on proposals around stakeholder engagement, Kate Elsdon, Partner, Governance & Compliance said: 

"The duty for directors to consider a wide stakeholder group when reaching decisions is clearly laid out in the Companies Act, however there is little transparency around how boards have done so and what impact those considerations have had on decision making. If nothing else, greater transparency, whether via stronger reporting requirements or stakeholder advisory panels, will prompt boards to consider and challenge the effectiveness of their stakeholder engagement processes." 
Commenting on proposals to extend parts of the UK Corporate Governance Code to privately owned businesses Kate Elsdon, added: 
"Whilst we are supportive of improving standards of corporate governance within privately owned businesses, with such a broad range of organisations impacted, any corporate governance reforms must be flexible, tailored and proportionate in order for them to be successfully embedded and effective. Regulation for regulation's sake risks becoming a box ticking exercise; to be truly effective, corporate governance must aligned to the core of a business's purpose and culture."



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