12:48pm Wednesday 20th June 2012
© Press Association 2014
Vince Cable has moved to strengthen the hand of shareholders by giving them powers to lead the crackdown on excessive executive pay deals.
The Business Secretary's proposed reforms will force companies to have binding votes on directors' pay plans every three years, or annually if changes are made.
For the first time, this vote will be legally binding - meaning that investors can overthrow pay proposals and that companies will not be able to make payments outside its scope.
The move represents a climbdown on previous aims to hold compulsory votes on pay annually, but will vastly improve current rules in which shareholder votes are advisory and can be ignored by companies.
Mr Cable has also stuck by plans to insist firms provide one single figure for total annual pay in order to make remuneration more transparent.
He said the package of reforms will "strengthen the hand of shareholders to challenge excessive pay whilst not imposing unnecessary regulatory burdens".
He said on unveiling the reforms that ever-increasing pay packets had become "irrational and damaging" in the years leading up to the financial crisis. "Top pay got out of control, most obviously in the banking sector, but also elsewhere in corporate Britain. It was irrational and damaging and it was necessary that shareholders should have the confidence to act," he added.
Otto Thoresen, director general of the Association of British Insurers hailed Mr Cable's proposals as "practical, workable and should help tackle excessive pay". He also welcomed the decision to make binding votes every three years, saying a fixed annual vote on pay had tended to drive up pay in practice rather than restrain it. It had also been feared that a binding annual vote would make investors less inclined to protest in case they destabilised management teams.
The Financial Reporting Council confirmed it would consult on measures to improve the corporate governance code following Mr Cable's plans. It will look at extending clawback provisions and limiting the practice of executive directors sitting on the remuneration committees of other companies.
Shadow business secretary Chuka Umunna hit out at the Government for backing down on proposals to hold a binding vote every year and for resolutions to require a super-majority to be approved. He also called for employee representatives to sit on boards to have their say on executive pay - a recommendation that Mr Cable has said would not be workable. Instead he proposes to ensure workforces are consulted ahead of pay plans.
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