According to reports, executive pay is off the agenda for the corporate governance code for private companies in the UK.

James Wates, chairman of Wates Construction and the man appointed by government to build the code, told the Financial Times: “I believe personally that what we pay our people in private businesses is between us and them.

“I don’t think we have to be overly transparent on that, because otherwise we’re just putting out a for sale [sign] on good, talented people.”

The FT also quoted Wates as saying that he thought the private company code, on which he is working with bodies such as the Financial Reporting Council, “may not be a million miles away” from the current UK Corporate Governance Code.

At first glance, that seems logical. Wates is concerned with companies that do not have publicly traded shares. Why should they be transparent on details like executive pay?

But it’s not so clear-cut. Indeed, Wates’s own company discloses some information about pay. The 2017 set of accounts shows that aggregate directors’ pay stood at £4.8m, including “emoluments”, payments in long-term incentive schemes and pension contributions. A further note says that total remuneration for “key management personnel” came to £10.09m.

Remuneration report

But is Wates really talking about a remuneration report? That would be puzzling because that’s not strictly part of the governance code to which he alluded. In fact, the remuneration reporting requirements for director’s pay in public companies are part of the Companies Act 2006, not the code.

The code does, however, have a great deal to say about remuneration. In fact, remuneration is one of the code’s core components and commands its own chapter—Section 5.

Here the code talks about the responsibility of the board in relation to pay, about requirements for remuneration committees, procedures to determine pay levels, the use of pay consultants, clawback arrangements, transparency of pay deals, alignment of pay to culture and long-term performance, and how incentives should work over the long term.

Revisions to the code currently under consultation also propose that remuneration committees extend their responsibilities to the pay of all employees.

It has little to say about disclosing actual pay levels.

Is Wates perhaps indicating that the private company code could duck the remuneration provisions included in the UK code? That would be culling a core part of current governance thinking.

Executive pay—the way incentives work and their effect on management decision-making—is the issue front and centre in many governance debates (for example, the government’s current consultation on share buybacks). It is a key component in the discussion of corporate culture, and an important element in the debate about the purpose of companies in society.

And these issues arise because there is an increasing recognition that companies have a responsibility beyond shareholders to other stakeholders—employees, suppliers, pension fund members and society.

An interest in sustainability

Private companies also have an interest in these issues. Though many may be family-owned, many have share owners. But they definitely have employees and suppliers, possibly pension fund holders who have a powerful interest in the sustainability of the company.

And the thrust of current thinking is that these people, workers especially, have a greater stake in the corporate body than was previously acknowledged. The question is, how much does any of that relate to executive pay?

For quoted companies, it’s a big deal. Is it really so insignificant for private companies? What would a code, even for private companies, look like with no pay provisions at all?

It’s possible that these comments reflect a debate behind the scenes, a discussion that raised the possibility of private companies becoming more transparent on pay levels. In which case, Wates has made it clear he’s not going there.

But it’s also possible that Wates is sending a broader message about the shape of the new private company code. In the context of current concern regarding pay, the comments seem to be preparing the ground for a document that may be conservative compared with the direction set in the revised UK code.

That prompts some interesting questions about what will or won’t be in the private code. It’s likely that a code “not a million miles” from the current governance recommendations won’t ignore all the issues concerning pay.

After all, it’s hard to imagine a code that fails to mention pay at all. But for governance anoraks, Wates has certainly created some anticipation.