Cable confirms binding pay vote
Vince Cable, the UK business secretary, has confirmed proposals to give shareholders a binding vote on executive pay.
The vote would be on future pay packages with the threshold for approval set at 75 percent, explained Cable as he set out a raft of measures to give shareholders more effective control over executive compensation.
‘There is now broad consensus across the main political parties and many business and investor groups in support of responsible capitalism,’ he said.
‘This precludes lavish payouts for failure or mediocrity, and addressing wider inequalities in remuneration.’
Last year executives earned a salary rise of 12 percent while the average worker was given a 2.3 percent rise, a cut in real terms. This is a continuation of trends that have resided over a decade.
New pay disclosure requirements
Speaking to the think tank Social Market Foundation in London, Cable also said that companies would have to publish a single figure for total pay, bonuses and other benefits for each director, including an explanation of how that pay related to company performance.
Cable announced that the government would carry out the changes based on four fronts: to boost transparency, give shareholders more effective control, increase diversity on remuneration committees, and encourage major investors and businesses to lead by example.
He also said that Britain’s recovery from the economic crisis should be down to successful business enterprise, and that entrepreneurs and managers who were doing well would receive competitive rewards.
Fidelity comes out in support
Fidelity, one of the world’s biggest money managers with more than £165bn ($257 bn) in assets, has come out in support of the proposals for a binding vote and the 75 percent acceptance threshold.
In an open letter published this week, the investment firm says: ‘Fidelity fully supports and recognises the need for reform in remuneration practices as individual instances of inappropriate levels of executive reward have destroyed public trust and led to a situation where all directors are perceived to be overpaid.’
The push for greater transparency and simplicity in pay disclosure has also been welcomed by the Confederation of British Industry, an influential lobby group. The CBI, however, says a binding vote would be bad for corporate governance.
‘The proposal that binding votes for shareholders will not be retrospective is welcome, but such a change does not make for good corporate governance as investors will be second-guessing and ‘man marking’ directors,’ comments John Cridland, the CBI’s director-general, in a prepared statement.