Announcement

Government action on executive pay

This news article was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Vince Cable announces plans to tackle executive pay.

Under new proposals from the Government shareholders will be given more powers to block excessive pay proposals and payments for failure. Companies will also be encouraged to increase diversity on their boards.

Firms will also have to justify high salaries with clearer and more informative remuneration reports.

The Business Secretary announced a package of measures aimed at tackling excessive executive pay. They will address this issue on four fronts:

  • Greater transparency, so what is paid is clear and easily understood.
  • More shareholder power so they can hold companies to account.
  • More diverse boards and remuneration committees (REMCOs), to tackle the status quo.
  • Best practice led by the business and investor community.

Vince Cable fleshed out the details of these proposals further in a speech to the Social Market Foundation earlier today.

The announcement follows on from a discussion paper which explored the issues around executive pay and company performance, and a consultation on improving company reporting.

What has been announced?

Greater transparency More information on what benchmarks companies use to set executive pay and how pay policy relates to company strategy and performance; companies must produce a single figure for total pay and show how spend on executive pay compares with other payouts such as dividends and business investment.

More shareholder power Government to consult on giving shareholders binding votes on executive pay policies and exit payments worth more than one year’s salary; and requiring companies to get 75 per cent (up from 50 per cent) shareholder support to pass the vote. Government to look at requiring clawback clauses to be introduced in all contracts so pay can be recovered if a company does badly.

More diversity Renewed drive to get more people from different professional backgrounds onto company boards; Government to look at reducing the number of current executive directors serving on other companies’ remuneration committees.

Employee engagement Companies to explain how they have consulted employees and taken account of employee pay when they set board pay. Government will also encourage employees to utilise their right to request that employers consult them on pay deals.

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