Member Article

Government announce radical executive pay overhaul

The Government has announced the most comprehensive reforms of the framework for directors remuneration in a decade, in a move which aims to address failures in corporate governance.

The changes will give shareholders binding votes on pay policy and exit payments to allow them to hold companies to account and prevent rewards for failure.

They will also boost transparency to ensure that what people are paid is easily understood and the link between pay and performance is clearly drawn.

It is hoped the reforms will have a lasting impact, by empowering businesses and investors to maintain recent activism.

Commenting on the changes, the Business Secretary 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 the Government initiated a national debate to encourage shareholders to become more actively engaged as company owners to better align directors’ pay with performance.

He continued: “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 new reforms will be introduced through amendments to the Enterprise and Regulatory Reform Bill, which is currently before Parliament.

The CBI has responded positively to the proposals. ohn Cridland, CBI Director-General, said:“This substantial package of measures strikes a balance, by giving shareholders increased transparency on pay and providing ways to hold Boards to account, without getting them bogged down in day-to-day micro-management.

“The introduction of a binding vote is a big change in the relationship between shareholders and companies, but rightly focuses on Board pay strategy, not individual pay packages.

“Requiring a vote every three years, unless pay plans change, will allow shareholders to stay focused on the big picture.”

The simplified regulations, setting out how companies must report directors pay will be published at the same time, and there will be an opportunity to comment on these regulations before they become law.

All reforms will be enacted by October 2013.

This was posted in Bdaily's Members' News section by Ruth Mitchell .