Cable announces plans to curb executive pay

July 16th, 2012

Vince Cable has announced plans to give shareholders a bigger say on the pay of big company chief executives.

The business secretary has announced measures to tackle the “disconnect between pay and performance” at large firms, telling MPs: “It’s right the government acts to address this market failure.”

Measures to increase pay transparency and help ordinary shareholders challenge escalating remuneration packages were announced by Cable.

Companies will have to reveal the total amount received by a boss, including salary, share options, pension entitlements and bonuses as part of the plans.

The amendments will be included in the Enterprise and Regulatory Reform Bill which is currently going through parliament, Cable said.

“For the first time there will be a real, lasting and binding control on pay,” he said.

“A company will only be able to make payments within the limits that have been approved by a majority of shareholders.

“This binding vote will happen annually unless companies choose to leave their pay policy unchanged, in which case the vote will happen at a minimum of every three years.

“This will encourage companies to set out and stick to a clear, long-term pay strategy and it will put a break on the annual upward pay ratchet.”

Shareholders can also choose to veto the pay-off a director receives when they leave a company under the plans.

Chuka Umunna, the shadow business secretary, said may pay packets received by top bosses are not linked to success or performance.

But he defended Labour’s decision not to introduce similar laws while they were in government and told MPs it was right the party “did not rush to legislation”.

Deborah Hargreaves, director of the High Pay Centre think-tank, admitted she was disappointed Cable had not chosen to make annual votes compulsory.

She said: “We hoped with annual votes that shareholders would get a chance to vote on what directors would be paid in the upcoming year, their share options and the criteria that would be required. I worry that a three-year policy vote will not be as effective.

“I think the danger with a three-year vote is that you will vote on policy which could end up being quite bland.”

Hargreaves said the group would support the vote every three years if it encourages long-term planning and stops the ratcheting up of pay every year, as Cable says.

But she added: “I do think it is the detail of the implementation that is important to make this effective, not a vague and ineffective statement to vote on.

“That’s up to shareholders, they have to get involved here and not allow companies to just do it.”

Cable announces plans to curb executive pay

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