MPs launch probe into executive pay and corporate governance

MPs are to investigate soaring executive pay as part of a wide-ranging probe into the way UK companies are run and the laws that govern them.

The announcement of the investigation into corporate governance - first revealed by Sky News - follows anger over working practices at Sports Direct and the collapse of BHS .

Boardroom pay has also been in the spotlight amid shareholder revolts at business giants such as BP and Smith & Nephew (LSE: SN.L - news) .

The issues of representation of workers on company boards and gender balance in executive positions will also be explored by MPs on the Business, Innovation and Skills (BIS) committee.

Committee chair Iain Wright said it would "look again at the laws that govern business and how they are enforced".

He acknowledged that private enterprise was vital to the UK's prosperity as well as public infrastructure such as schools and hospitals.

But he said "irresponsible behaviour and poor corporate governance" could act as a brake on long-term profitability and tarnish the reputation of business, as well as harming workers.

Mr Wright said: "Good corporate governance shouldn't be a hindrance to business.

"It can contribute to companies' long-term prosperity and performance as well as showing to the world that a business is transparent, accountable and responsible."

MPs were keen to explore soaring executive pay "especially when there often seems to be very little connection with company performance or any pay rises to the vast majority of employees".

They will look at how pay can be linked to long-term performance, whether it should relate to salaries earned by junior workers.

The probe will also consider whether, following recent revolts, there should be a greater role for shareholders in setting pay.

It comes as Theresa May considers an overhaul of blue-chip companies' governance.

The new Prime Minister has signalled she is in favour on binding annual shareholder votes on pay packages as well as employee and consumer representatives on boards.

Simon Walker, director general of the Institute of Directors, said: "The reputation of corporate Britain has not recovered from the financial crisis.

"The Prime Minister has made clear the company boards are in her sights, so directors must fully engage in this debate."