Binding Shareholder Vote and Bonus Claw-backs Amongst Plans for Curbing Executive Pay

Binding Shareholder Vote and Bonus Claw-backs Amongst Vince Cable’s Plans for Curbing Executive Pay

Tuesday 24 January, 2012

Vince Cable has announced his plans for curbing boardroom pay in a speech to MPs, following a discussion paper on executive pay published in September last year. 

Measures outlined by the Business Secretary include:

• Giving shareholders a binding vote on executive pay and on notice periods exceeding one year and severance packages of more than one year’s salary;
• Making remuneration reports clearer, easier to understand and more informative with sections detailing proposed future policy on executive pay and how pay policy has been implemented in the previous year;
• Publication of a figure for total pay for each director and an explanation of how pay awards relate to company performance;
• Encouraging a wider range of people on to company boards, including academics, lawyers, public servants and those who have not been board members before.  This in turn will lead to more diverse remuneration committees capable of changing the status quo on executive pay; and
• A change to the corporate governance code to require all large public companies to introduce claw-back policies, allowing them to recoup bonuses where performance does not live up to expectations. 

Mr Cable rejected the idea of pay ratios (creating a link between the highest and lowest pay in a company) as potentially misleading, saying that a firm with a large number of low paid workers would compare unfavourably with one which has outsourced all of its low paid work.  He also rejected the idea of compulsory employee representation on remuneration committees, whilst acknowledging that this was good practice on a voluntary basis.   

The Government’s proposals have been criticised by Labour and the TUC as not going far enough. 

Vince Cable’s announcement follows the publication of the Summary of Responses to the Executive Remuneration Discussion Paper.  Earlier this month the Government indicated that legislation to curb executive pay would be included in the Queen’s speech in the Spring.