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Mar 13, 2012

UK sets out binding vote details

Criticism greets consultation launched to finalize plans for a binding vote on executive pay

The UK government has laid out in a consultation document its detailed proposals for a binding vote on executive pay.

The consultation, which will iron out the exact measures to be put before parliament later this year, was immediately met with criticism from business figures.

‘Our objective is to promote an improved dialogue between companies and those that invest in them and a greater symmetry between pay and performance,’ writes Vince Cable, UK business secretary, in an introduction to the document.

Details put forward

The proposals call for an annual vote on companies’ pay plans, covering potential payouts and the performance measures to be used.

If a vote is lost, the company would have to fall back on its old system or call a general meeting to have a revised policy approved.

The government also said it would consider raising the voting threshold for passing a pay vote to between 50 percent and 75 percent.

This is a slight step back from Cable’s previously announced desire for a 75 percent voting threshold, which has attracted strong criticism from some quarters.

Cable also wants a backward-looking advisory vote on last year’s pay awards, which is similar to what the UK already has in place, and a binding vote on exit payments to executives that exceed one year’s base salary.

Criticism from CBI

The Confederation of British Industry (CBI), a lobby group, was quick to criticize the proposals, saying they risk turning shareholders into ‘micro-managers’ of companies.

‘Businesses do not believe binding shareholder votes are the right way to ensure executive reward reflects performance,’ comments John Cridland, the CBI’s director-general, in a prepared statement.

‘The consultation’s proposal for up to a 75 percent shareholder vote approval threshold would be damaging, leaving decision making about company strategy in the hands of a minority of shareholders who may not represent the wider group.’

Others came out in support of the proposals. Sarah Wilson, CEO of Manifest, the proxy voting agency, says raising the voting threshold ‘is the right thing to do based on the reaction of many companies to ballot box revolts that ‘a win is still a win’, despite the strong dissent to the proposals,’ reports the Financial Times.

Earlier this year, Fidelity, one of the world’s largest asset managers, came out in support of both a binding vote and a 75 percent threshold, handing the government an influential supporter for its plans.

Next steps

The consultation will now seek comment on the impact and costs of the proposals.

The government hopes to put forward legislation with the exact measures later this year, leading to changes taking effect in October 2013.

The Netherlands has had a binding vote since 2004, which has led to increased tension over compensation discussions but very few actual ‘no’ votes.