Vince Cable forces binding executive pay votes

 

Business Secretary Vince Cable: "Evidence of disconnect between pay and performance"

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Business Secretary Vince Cable has announced plans to force companies to have binding votes on executive pay every three years.

Companies will then have to stick to their pay plans for the next three years or have another shareholder vote.

Labour has said there should be a binding vote annually, however.

Under the new plans, firms will also have to publish a simple figure every year showing how much executives have been paid.

And they will have to publish exit payments - saying how much directors will be paid if they are sacked or resign.

Mr Cable said the proposals were a "strong package of reform" which would restore a "stronger, clearer link between pay and performance".

Currently, while shareholders get to vote on executive pay packages every year, their votes are not binding so in theory the board can ignore the vote.

Shadow business secretary Chuka Umunna criticised the plans for falling short of demands for a binding vote annually, and accused Mr Cable of making a U-turn on the issue.

"It is deeply disappointing that having marched us all up the hill he appears to have marched us back down again," he said.

Symbolic

Analysis: Single pay figure

A director with a relatively low figure for aggregate remuneration may compare favourably to one with a higher figure - but not when the composition of the package is looked at more closely.

The key to making this proposal work is keeping a very clear distinction between amounts earned in the year, performance pay earned for previous years' performance, and pay that may be earned for future years' performance.

If we do not keep this distinction clear, history tells us we will see base pay creep up - a consequence that Vince Cable can in no way have intended.

The binding shareholder vote on executive pay will require a simple majority of more than 50% for a policy to pass.

Labour called for a higher threshold of 75%.

BBC political correspondent Norman Smith said part of this was about politics - reining in top pay - and part of it was the government sending out a symbolic message to buttress the argument that "we're all in this together".

The Association of British Insurers (ABI), whose members include the biggest institutional investors in the City, welcomed the proposals, saying they were "practical, workable and should help tackle excessive executive pay".

The British Chambers of Commerce (BCC) greeted the news with caution.

"If binding votes every three years deliver improved levels of shareholder accountability, we have no objections," said John Longworth, BCC director general.

"But government intervention should stop there. Setting levels of executive pay is a matter for companies, their boards, and their shareholders, not politicians."

'Complex and woolly'

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In theory, the reforms should change the balance of power between investors and boardrooms”

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Gavin Oldham, chief executive of retail stockbroker The Share Centre, said it was a step in the right direction.

"Institutional shareholders are now realising what personal investors have actually understood for a long time - that executive pay matters and they need to take more attention of the general conditions of the economy and how their employees are getting on."

BBC business editor Robert Peston said executive pay rises may also be tempered by the new simplicity and clarity Mr Cable hopes to bring to the question of how much bosses actually pocket every year

"Right now it is very difficult to see the total amount that any executive takes home because the remuneration sections of annual reports are immensely long, complex and woolly, especially in regard to earnings from large and important long-term incentive plans," he said.

Last week, shareholders in the advertising group WPP voted against the company's executive pay report, which included a £6.8m deal for chief executive Sir Martin Sorrell, by a majority of 59.5%.

Last month, shareholders in the insurance company Aviva voted down its remuneration report.

Some observers said that there was a shareholder spring taking place, with shareholders becoming more active.

What do you think of these plans? Send us your comments using the form below

 

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  • rate this
    0

    Comment number 401.

    The simple answer would be to have annual contracts where the incentives are listed and have to be paid for in each year and taxed in the same year. Most contracts are open ended and for most employee they stipulate the salary comencement, subject to annual advances. However many CEOs retain their jobs at shareholder meetings so contracts should be annual.

  • rate this
    +2

    Comment number 398.

    My only observation to this rule is 'Why do owners of companies (ie the shareholders) not have a binding say on the pay of executives in the first place? Why was this ever not the case?"

  • rate this
    +5

    Comment number 290.

    This is a step in the right direction, but only that.

    The pay of these directors, bankers, etc should be capped. The fact is is that most of these people are earning obscene salaries which cannot be justified.

  • rate this
    +9

    Comment number 288.

    It's interesting that there are people defending executive pay on the grounds that those individuals make money for the company. The whole drive behind this proposal is that the remuneration packages of certain execs bears no relation to the performance of the company. Many execs are receiving whopping bonuses for poor performance -- the opposite of the defencive argument.

  • rate this
    0

    Comment number 195.

    And we're all watching the Euro Football tournament coveting the world's biggest bunch of over paid people. The salaries of the England players alone dwarf those of the top CEO's of FTSE 100 firms. These 24 year olds earn more than 50 year old blokes who've reached the top of their careers after 30 years of 12 hour plus days and we're still obsessed with Executive pay? Priorities!

 

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