Business Secretary Vince Cable has announced the most comprehensive reforms of the framework for directors’ remuneration in a decade.
This package of reforms will address failures in corporate governance by empowering shareholders to engage effectively with companies on pay. It will:
- give shareholders binding votes on pay policy and exit payments, so they can hold companies to account and prevent rewards for failure
- boost transparency so that what people are paid is easily understood and the link between pay and performance is clearly drawn
- ensure that reform has a lasting impact by empowering business and investors to maintain recent activism
Vince Cable said:
“At a time when the global economy remains fragile, it is neither sustainable nor justifiable to see directors’ pay rising at 10 per cent a year, while the performance of listed companies lags behind and many employees are having their pay cut or frozen.
“In January we kicked off a national debate aimed at encouraging shareholders to become more actively engaged as company owners in better aligning directors’ pay with performance. I have been greatly encouraged by the ‘shareholder spring’ and I want to see that momentum sustained. That is why I am bringing forward legislation to strengthen the powers of shareholders through a binding vote on pay.”
The government’s reforms will provide shareholders with new powers to hold companies to account, while making it easier to understand what directors are earning and how it links to company performance.
Introducing directors’ pay reforms
The government will introduce the reforms through amendments to the Enterprise and Regulatory Reform Bill, which is currently before Parliament.
Revised, simplified regulations setting out how companies must report directors’ pay will be published at the same time. There will be a chance to comment on these regulations before they become law.
The government intends all these reforms to be enacted by October 2013.