News
Update on government executive pay proposals by James Drewer of Maitland Political:
Vince Cable started by saying that there is clearly a problem, the coalition were unified and the Government is going to act. He said that “The Government can’t accept the pay awards that we’ve seen in recent history”, going on to say that the way awards have outstripped all measures of success was wrong.
He acknowledged that it is not for Government to micro manage BUT……..
He outlined four areas that the Government is going to focus on:
1. Transparency
He said that shareholders want clearer information about pay.
• In future an independent remuneration report will be required. Secondary legislation will require information about remuneration to be published by an independent source.
Remuneration committees will be required to explain the remuneration bench marks they have used.
• Companies will also be required to show they have consulted staff on senior remuneration.
• Pay policy must be shown to fit into company strategy (not sure how – no details)
• The total pay package for each director will be published
2. Shareholder power
The Business secretary wants shareholders to be more active.
• There will be binding shareholder votes on remuneration
• Each company will be required to provide a statement to explain how shareholder views have been taken on board with regard to executive pay
• There will be binding votes on nominations to the board (seeking further clarification here)
• The Government will look at the whether a higher threshold (perhaps 75%) is needed for remuneration votes
3. Board Diversity
The Government will act to make sure company boards are more diverse.
• In future boards will be required to have two people that have never served on a board before
• Companies will be required to provide an annual statement on boardroom diversity
• Conflicts of interest on remuneration consultants (with regard to who appoints them and who they are accountable to) will be tightened up
• The Government will “tackle” the practice of crony remuneration committee membership. Other company executives bared from rem-com membership
4. Reward for failure
• PLCs will include a claw back mechanism in the contracts of directors
• The Financial Reporting Council will be responsible for regulating this
Other future activity:
Deborah Hargreaves will be launching a new study (no details)
The High Pay Centre will be monitoring the situation
The Government will seek to engage with businesses in the coming months to work up best-practice arrangements
Published: 24 January, 2012