Shareholders will have greater powers to influence executive pay if a government consultation designed to tackle the current gulf between performance and pay gets the green light.
The consultation, Executive pay: consultation on enhanced shareholder voting rights, launched by the Department for Business, Innovation and Skills (BIS), put forward a number of measures, including: an annual binding vote on future remuneration policy; increasing the level of support required on votes on future remuneration policy; an annual advisory vote on how pay policy was implemented in the previous year; and a binding vote on exit payments of more than one year’s salary.
Under the proposals, employers will be required to report on how they have responded to shareholder concerns and taken previous votes into account.
Vince Cable, business secretary, said: “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 is appropriate that we put more information and power in their hands.
“I have no problem with business celebrating success and rewarding talent, but I have heard frustration from all circles that directors’ 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.”
John Cridland, director-general of the Confederation of British Industry (CBI), rejected the push for greater shareholder power, arguing that it would simply turn shareholders into micro-managers, which would hamper business development.
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