Shareholder committees could curb UK bosses' pay bonanza - report

By Kylie MacLellan

LONDON (Reuters) - British public companies should be required to create shareholder committees responsible for proposing executive pay, to help constrain the spiralling salaries of top bosses, said a report published on Thursday.

The report, by lawmaker Chris Philp of the ruling Conservative Party, and think-tank the High Pay Centre, said shareholders often fail to exercise their responsibilities, helping clear the way to excessive executive rewards.

Prime Minister Theresa May, who took office after Britain's June 23 vote to leave the European Union, has pledged to give shareholders more powers to curb boardroom salaries.

"The doubling of the ratio of CEO pay to employee earnings in the last 12 years is best explained as a failure of governance. Excessive pay is a symptom of a weak board and poor shareholder engagement," the report said.

A survey by the High Pay Centre last month found the average pay package for a chief executive of a company in the FTSE 100 index of leading British companies had risen more than 10 percent in 2015 to an average of 5.5 million pounds ($7.2 million), on average 140 times more than their staff.

The shareholder committee, a model used in Sweden, would be made up of the largest five shareholders who have held the stock for more than 12 months, with a company employee and the chairman of the main board also attending meetings.

It would approve pay policy and recommend the appointment and removal of directors, before both were put to a vote of all shareholders. It would also question the main company board on corporate strategy and performance, the report said.

It also calls for mandatory publication of the ratio of total CEO remuneration to median worker pay, and binding annual shareholder votes on executive pay, both also mooted by May.

Some big investors and industry analysts are sceptical about the effectiveness of such measures, with many fund managers not having big enough governance teams to scrutinise pay at all the companies in which they invest.

The report said shareholders would not be obliged to take up all positions on offer, but would be expected to serve at the companies in which they are most actively interested. If a shareholder declined to take up a committee seat it would pass to the next largest shareholder.

(Editing by David Holmes)