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UK shareholders to vote on exec pay

Monday 23 January 2012 – by [email protected]

UK shareholders will be given more powers to block excessive executive pay packages under new proposals announced on Monday.

Appearing before Parliament, business secretary Vince Cable said that shareholders should have binding votes on new executive pay deals and on any director’s contracts that are over a year long.

All companies will be required to introduce clawback policies to ensure they can recoup executive bonuses paid after short-term gains were not upheld, he said on Monday. Additionally, firms’ remuneration reports should be made easier to understand, he said, ensuring that their salaries are explained in relation to other employees.

He also called for greater diversity on boards, ensuring that boards will contain two people who have no previous experience in boardrooms.

Banker bonuses have proven to be a political hotcake in the UK following the financial crisis, with many firms continuing to reward executives despite requiring assistance from the taxpayer.

Cable’s proposals will be revealed in full on Tuesday, the Department for Business, Innovation and Skills said. The business secretary had planned to unveil the measures in front of think tank Social Market Foundation tomorrow, until speaker John Berkow accepted an urgent question from shadow business secretary Chuka Umunna pressing Cable on his plans.

“No proposal on its own is a magic bullet but together they can enable a major transformation to get underway,” Cable told Parliament, according to Reuters.

“Shareholders need powers to hold the board to account and I will consult shortly on specific proposals to reform the current voting arrangements and give shareholders a binding vote, enabling them to exert more pressure on boards,” he added.

Sacha Sadan, director of corporate governance at Legal & General Investment Management, called for remuneration policies to be made more transparent.

Executive performance targets, and the level of bonus to be rewarded if these objectives are met, should be made “clear and explicit”, Sadan says. The method of paying the award, through separate pay, bonuses and share options, should also be disclosed.

“Pay and especially bonuses need to be aligned to the long-term interests of shareholders and executives themselves should own a meaningful amount of shares in the company,” Sadan added.

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