New report shows top company bosses saw their pay packets rise by as much as 10%, in contrast to workers' salaries.Read the full story ›
Business Secretary Vince Cable said he wants to make the so-called 'shareholder Spring' permanent.
He said the Government could not guarantee that executive pay will actually come down, just that "pay policy" will be more responsible, as it will take in the interests of shareholders and will be dependent on performance.
This substantial package of measures strikes a balance, by giving shareholders increased transparency on pay and providing ways to hold Boards to account, without getting them bogged down in day-to-day micro-management.
The introduction of a binding vote is a big change in the relationship between shareholders and companies, but rightly focuses on Board pay strategy, not individual pay packages. Requiring a vote every three years, unless pay plans change, will allow shareholders to stay focused on the big picture.
The Government has been persuaded that binding votes should be on a straight majority, which will ensure that Boards are not at the mercy of activist minorities.
The introduction of a binding shareholder vote on executive pay policy provides shareholders with an excellent opportunity to assert their interests as owners. This is not about having a bun fight for its own sake, but allowing the people who own a company to have a real say over a company’s performance against longer-term strategic objectives.
The Government’s proposals reflect a reasonable balance between improving the accountability of executive pay and encouraging a longer-term business perspective. These measures will help to rein in the trend in some large firms for rewards that simply aren’t justified by performance – and in so doing, they will help to strengthen the reputation and practice of business.
Binding annual votes – or even binding votes every third year if the company chooses that option – where shareholders get to vote on real numbers on pay and actual remuneration packages could mean a new era of more sensible pay setting for those at the top. But if all shareholders are being asked to do is vote on a vague notion of a company’s pay policy, little will change and directors’ pay will continue to rise at rates ordinary workers can only dream about.
Giving employees a voice in discussions about pay at the top of their organisations is the one reform that would see an immediate reining in of corporate pay excess. Employees who have seen their pay held down or frozen as austerity bites would inject a similar dose of economic reality to the pay of those in the boardroom.
Those with the most to lose from executive pay reform have already persuaded ministers against the 75 per cent approval rating for pay packages – a move which would’ve given these proposals real bite. Ministers must not allow the business lobby to water down any more government moves to curb executive excess.
One WPP shareholder told ITV News that Cable's reforms are useless if there is no accountability for large corporate shareholders to disclose which way they voted.
Business Secretary Vince Cable has announced reforms that will strengthen shareholders powers in reducing excessive pay deals for executives.
Mr Cable said the package of reforms will "strengthen the hand of shareholders to challenge excessive pay whilst not imposing unnecessary regulatory burdens". He added that ever-increasing pay packets had become "irrational and damaging" in the years leading up to the financial crisis.
Top pay got out of control, most obviously in the banking sector, but also elsewhere in corporate Britain. It was irrational and damaging and it was necessary that shareholders should have the confidence to act.
Vince Cable moved to strengthen the hand of shareholders today by giving them powers to lead the crackdown on excessive executive pay deals.
The Business Secretary's proposed reforms will force companies to have binding votes on directors' pay plans every three years, or annually if changes are made.
For the first time, this vote will be legally binding - meaning that investors can overthrow pay proposals and that companies will not be able to make payments outside its scope.
The move represents a climbdown on previous aims to hold compulsory votes on pay annually, but will vastly improve current rules in which shareholder votes are advisory and can be ignored by companies.
It is disappointing that the government is watering down its corporate governance proposals with an embarrassing climbdown on the proposal for annual binding shareholder votes on executive pay. On its own, this measure would not have been sufficient but it would have been a step in the right direction.
At a time when shareholders are becoming more assertive and engaged, the government is failing to do all it can to empower them to hold boards to account and act as a check against excess and rewards for failure. Now is not the time to be rowing back from reform, and Labour has called for ministers to go further.
This U-turn on what we were led to believe was a flagship policy further undermines the credibility of Vince Cable and the emasculated Business Department, and adds to the pervading sense of a Prime Minister and Chancellor out of touch with investor and mainstream opinion.