Vince Cable forces binding executive pay votes
- 20 June 2012
- From the section Business
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.
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'
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.