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Hermes responds to the UK Government’s paper on corporate governance reform

Leon Kamhi, Head of Responsibility at Hermes Investment Management, comments on today’s publication, Corporate governance reform, by the UK Government:

“The additional measures proposed today 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.

“Whilst it is not a panacea and the appropriate ratio will differ from company to company, increased transparency provided by the publication of the CEO-to-median-employee pay ratio is to be welcomed as it puts pressure on boards to explain the rationale behind the level of executive remuneration and disparities in pay across the organisation.

“We strongly believe that boards of both public and private companies need to be more diverse and recognise the critical contribution that employees make to the success of every company. Whilst we would have liked the Government to go further and propose elected employees on boards, we are encouraged to see recognition for the clear benefits that are gleaned from greater employee voice in a company’s governance.

“All companies, whether public or private, need to be working on behalf of the beneficiaries who are invested in them, and so we firmly support the introduction of a corporate governance code adapted for private companies.”

Remuneration Principles: clarifying expectations, a white paper published by Hermes on 14 November and referenced by the Government today, outlines why well-structured remuneration practices are key to aligning the activities of management with a company’s purpose, strategy and long-term performance. In the paper, Hermes also emphasises the need to address the question of fairness and give it a social licence to operate. 

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