Shareholders will get greater powers over executive pay
SHAREHOLDERS are to be handed greater powers over the pay and bonuses of company executives under new rules, Business Secretary Vince Cable has announced.
The move comes amid discontent over the way some top directors have been receiving large bonuses despite opposition from shareholders.
Mr Cable yesterday pledged that the culture of “reward for failure” would be dealt with by the reforms. He told MPs that the new rules would tackle the “disconnect between pay and performance” in big companies.
His announcement came after months of shareholder revolts including at Barclay’s Bank where 26.9 per cent voted against the bonuses for senior directors, including chief executive Bob Diamond’s £4 million package.
Another revolt at insurers Aviva saw the chief executive, Andrew Moss, step down while Sir Martin Sorrell, chief executive of advertising giant WPP, saw 60 per cent of shareholders vote against his pay package.
Mr Cable said more needed to be done because the market was failing shareholders and the country. He unveiled measures which would increase pay transparency and help ordinary shareholders challenge bulging remuneration deals.
Mr Cable said the shake-up would force companies to reveal the total amount of a boss’s pay, including salary, pension entitlements, share options and bonuses, but denied the revamp would hamper industry with “unnecessary burdens”.
He said: “The government has encouraged shareholders to become more engaged as owners of their companies during the so-called ‘shareholders’ spring’.
“We have also seen many companies engage constructively in the face of this opposition. This has been an important step for encouraging improved pay discipline.”
Mr Cable said the changes would be included in amendments to the Enterprise and Regulatory Reform Bill now going through parliament.
He added: “For the first time there will be a real, lasting and binding control on pay.”
Companies will also have to publish a single remuneration figure for each director, so that investors do not have to search complex annual reports to calculate total rewards, and provide a chart which compares chief executive pay and company performance.
Shadow business secretary Chuka Umunna criticised pay packages for top bosses, saying: “Many of these rewards are not linked to success or performance.”
However, he defended Labour’s decision not to introduce similar laws during its 13 years in office, telling MPs it was right the party “did not rush to legislation”.
Trades Union Congress general secretary Brendan Barber said: “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.”
The Institute of Directors’ director-general, Simon Walker, said: “The introduction of a binding shareholder vote on executive pay policy provides shareholders with an excellent opportunity to assert their interests as owners.”
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