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
    +1

    Comment number 416.

    This move is designed to send a message to us, the ordinary citizens of this country. It is supposed to make us believe that the gang in charge actually give a stuff about how much the already-wealthy can get away with. We need a fair system, and the condems are not the ones to deliver it - but there again, they wouldn't understand anyway.

  • rate this
    +1

    Comment number 415.

    Let all employees have a vote on what bonuses are awarded. Alternatively, it should be a set financial amount for every employee, regardless of position, as every employ has contributed to the company's success - if not, why are they there?

  • Comment number 414.

    All this user's posts have been removed.Why?

  • rate this
    +2

    Comment number 413.

    The only form of “Bonus” a company should be allowed to pay is a “Profit Earning Bonus”.

    No profit then no Bonus. The pool for the “Bonus” should not be allowed to be larger than the pool for dividends to shareholders, and the bonus should be distributed between ALL employees on a set formula as all employees have contributed to generating the profit.

  • rate this
    +2

    Comment number 412.

    Good move, something has to change.

    Just make sure that the figures quoted are what we want to see - separating previous years, future years from current year and clearly showing what needs to be achieved to have an award of any performance-related pay - which must be justifiable, not "turns up on time".
    Then we will see if shareholders are really up to the job.

  • rate this
    +3

    Comment number 411.

    399. Good Egg

    In an ideal world we'd live in a state run utopia

    ------

    It doesn't take a state-run utopia to curb the excesses of the free-market.

    Just stop the excesses of it and reward enterprise and hard work rather than naked greed!

  • rate this
    0

    Comment number 410.

    presumably the theory now applies to non performing ministers which we can vairey their pay upon performance every 12 months or less.This means the under performing departments will start getting their act together or keep on producing failure and ignore this cable initiative?

    P.S sorry vince you did not get the all expenses trip to Rio with clegg

  • rate this
    +2

    Comment number 409.

    salaries for all workers across the whole country should be published every year.This would show the difference from executives to the people at the bottom of the scale.we could then try and bridge the gap between the rich and the poor. I WANT A LIVING WAGE £10 HOUR FOR ALL BRITS CHEERS

  • rate this
    +2

    Comment number 408.

    405. No_7 “If executive 'compensation' increases faster than the company expands, how long before it's entire profits are needed to pay their salaries and bonuses?”

    Well the short term trick they use is to “reorganise the company”, make large numbers of lesser employees redundant, and expect the remainder to work longer and harder for no extra or in some cases for less.

  • rate this
    -1

    Comment number 407.

    You have to realise these people are capable of earning their income elsewhere and beleive you me they will do just that .

    Political mumbo jumbo fuelled by the envious society !

  • rate this
    +2

    Comment number 406.

    Another option on Company Voting Documents is to vote for or against Political Donations.
    What exactly does a company get when it donates £200K to a particular Party?

  • rate this
    0

    Comment number 405.

    If executive 'compensation' increases faster than the company expands, how long before it's entire profits are needed to pay their salaries and bonuses? Sounds fanciful? It's a mathematical certainty. There's a limit to this excess no matter what way you cut it. It begins to look like companies exist purely to pay their executives, and that returns to shareholders don't really matter.

  • rate this
    +1

    Comment number 404.

    402. Walt78
    By continuely acting irresponsibly they have shot themselves in the foot & have this coming

    -----

    Which goes to prove what I said earlier: They never care about the long-term, just grab what you can today, damn tomorrow!

  • rate this
    0

    Comment number 403.

    391. Chris “according to most positive posts no one should ever have any ambition, reaching to top means you are a parasite.”

    Problem is having ambition, working hard, and knowing how to do your job does you no good, because in most big businesses, beyond middle management is where the "executive class" reside, and they have pulled the ladder up so you can’t work your way up any further.

  • rate this
    +2

    Comment number 402.

    384.aka_bluepeter

    I think in an ideal world where Company Execs were capable of having a moral compass you would be right. Unfortunately we see Exec Pay rising at a rate of knots compared to ordinary workers & the banking industry in particular being the worse culprits. By continuely acting irresponsibly they have shot themselves in the foot & have this coming

  • 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
    +1

    Comment number 400.

    391. Chris: I'm not sure that's accurate. I think it's the disconnect between value generated for shareholders and executive pay that prompts a lot of this. If dividends drop off a cliff while executive pay still rises, people wonder what executives are being paid for. Top pay that's 500 times 'bottom' pay strikes people as well beyond what's rational and sustainable.

  • rate this
    0

    Comment number 399.

    @395

    In an ideal world we'd live in a state run utopia. In reality the state is run with as much self interest as private enterprise, the only difference being that there is little subtefuge over that matter in the private sector. We are looking for a least worse solution. State intervention IMHO is not it and in this case is ineffectual in any case and merely ideological political red meat.

  • 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
    0

    Comment number 397.

    Well I suppose it's a start. Can we regulate the banks to stop them gambling away all our money now please?

 

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