Throughout 2012, there has been a government focus on executive pay and related shareholder voting rights.
The latest move, at the end of September, was the Department for Business, Innovation and Skills’ (BIS) release of consultation proposals on reporting regulations for executive remuneration.
The consultation, Directors’ pay: revised remuneration reporting regulations, followed business secretary Vince Cable’s announcement on 23 January 2012 that the government wanted a package of measures to address failings in the corporate governance of executive remuneration.
The consultation took place between April and June, and in July economist John Kay published the government-commissioned Kay Review, which called for a realignment of incentives by better relating directors’ remuneration to long-term business.
The BIS consultation proposals, if enacted, would give shareholders a binding vote on salary and bonus arrangements every three years, as well as compelling organisations to show executive pay as a single ﬁgure, produce an annual statement on whether performance targets have been met, and set out an approach to directors’ exit payments as part of their pay policy.
Andrew Page, partner at executive pay consultants New Bridge Street, said there were two main areas of focus for shareholders from the consultation: to get a better handle on the rationale and process around bonuses, and to get a better sense of exit payments.
“The real impact on companies will come from how shareholders use their new powers,” he said. “If they seek a lot of detail and speciﬁcs, it will restrain companies’ room for manoeuvre, but if shareholders are willing to work more with a default of trust, it will all work as it is intended to.”
“All the signals we are getting from investors is that they will go into it with a constructive attitude, with the default of trust, but if they feel the company is stepping out of line, they can bring it back in.”