The UK government has launched a consultation on corporate governance in the country that includes the idea of intra-company pay ratios as one means of addressing concerns raised by institutional investors about excessive pay. 

The department for business, energy and industrial strategy (BEIS) unveiled the green paper today.

It is designed to “stimulate a debate on a range of options for strengthening the UK’s corporate governance framework, including options for increasing shareholder influence over executive pay and strengthening the employee, customer and supplier voice at boardroom level”.

One of the topics it is seeking feedback on is corporate governance in privately held businesses.

The government said it did not have “preferred options at this stage”.

The consultation comes two days before the PLSA is due to publish its AGM report.

Luke Hildyard, stewardship and corporate governance policy lead at the association, said it would highlight “how our pension fund members feel about current levels of executive pay” and set out how satisfied pension funds were with respect to asset managers fulfilling their stewardship responsibilities.

“Our members are concerned by the rising levels of executive pay and believe the justification for this increase is weak,” said Hildyard.

“We are pleased the government’s green paper is expected to include proposals we have previously advocated, including the publication of intra-company pay ratios.”

The UK’s Financial Reporting Council (FRC), responsible for the country’s corporate governance and stewardship codes, welcomed the government’s “wide-ranging” consultation.

The government green paper comes after the BEIS select committee earlier this year carried out a corporate governance inquiry, with the FRC noting that it made recommendations as part of this, such as on developing the role of the remuneration committee.

The FRC said it stood “ready to develop and implement these proposals to help support a strong economy and meet the needs of wider society”.

Leon Kamhi, head of responsibility at Hermes Investment Management, said the measures proposed by the government “look set to strengthen investors’ hand on pay, and it is now incumbent on both companies and us as investors to respond to the challenge of excessive executive remuneration”.

Publication of a CEO-to-median-employee pay ratio, he said, was “not a panacea” but would provide welcome increased transparency, “as it puts pressure on boards to explain the rationale behind the level of executive remuneration and disparities in pay across the organisation”.

He noted that the government did not propose elected employees on boards, a measure Hermes IM would have liked to see.

Employee representation on boards is a measure prime minister Theresa May called for in corporate governance comments in her early days in office, although she has since backed away from this.

Frances O’Grady, general secretary at trade union TUC, said the government’s proposals were “disappointing” and would “not do enough to shake-up corporate Britain”.

“This is not what Theresa May promised,” she said.

“We need the voice of elected workers in the boardroom, rather than on advisory panels.”