The Government has proposed giving shareholders a binding vote on executive pay.
The Department for Business Innovation and Skills has published a consultation which suggests giving shareholders an annual binding vote on executive pay as well as increasing the level of support required in those votes for pay packages.
It also proposes that firms be required to provide shareholders with an annual advisory note on the previous years decisions on pay and a binding vote on golden goodbyes that are worth more than a year’s salary.
Business Secretary Vince Cable says: “I have no problem with a business celebrating success and rewarding talent, but I have heard frustration from all circles that director’s pay goes up when times are good, and yet it still goes up when performance is poor.
“I want shareholders to feel empowered to prevent rewards for mediocrity or failure.”
BIS says that the proposals would mean companies have to report each year on how they have responded to shareholder concerns and taken previous votes into account. It says the intention is to promote engagement between companies and those who invest in them and to create a stronger link between pay and performance.
Cable says: “Good corporate governance is vital to creating the right environment for long-term, sustainable growth. Shareholders are at the heart of the UK corporate governance framework, so it’s appropriate that we put more information and power in their hands.”
National Association of Pension Funds head of corporate governance David Paterson says: “We are supportive of the Government’s general direction but key to the success of the binding vote will be the quality of engagement between companies and their shareholders, and a good explanation of pay policy in the annual report.”