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UK plans tighter rules on executive pay
March 14, 2012 / 6:07 PM / 6 years ago

UK plans tighter rules on executive pay

Britain's Business Secretary Vince Cable walks out of 10 Downing Street in central London, November 16, 2011. REUTERS/Andrew Winning

LONDON (Reuters) - Britain would give investors in UK-listed companies binding annual votes on executive pay and exit payments under proposed new laws designed to strengthen the link between wages and performance, the government said on Wednesday.

Seeking to ease public anger over big rewards for corporate leaders at a time of squeezed finances for most households, Business Secretary Vince Cable said he wanted “to prevent rewards for mediocrity or failure”.

British executives’ pay shot up by nearly 50 percent last year, despite sluggish economic growth and only moderate expansion by leading companies, surveys showed.

In line with other countries, Britain’s government has faced pressure to take action over high pay, particularly in the banking sector, which has benefited from huge injections of public money during the financial crisis.

“My objective is to enable shareholders to promote a stronger, clearer link between pay and performance in order to prevent rewards for mediocrity or failure,” Cable said in a statement launching a public consultation on the plans.

If the proposals become law, shareholders would get new powers to take part each year in a binding vote on future remuneration policy. They would also be able to vote on exit payments worth more than a year’s salary.

The government also wants to raise the level of support needed to carry votes on future pay policy from the existing requirement for a simple majority. The threshold has yet to be set, but could be somewhere between 50 percent and 75 percent, the government proposal said.

The Institute of Directors, a business lobby group, said it would oppose raising the level.

“The government should not set arbitrary thresholds for the vote,” said IoD Director General Simon Walker. “When a majority of shareholders support a policy, it should clearly be implemented by the board.”

The government will canvass opinion on the plans until April 27 and publish final proposals in the summer. It will then seek to pass new laws later this year.

Earlier, Cable welcomed a report commissioned by the last Labour government on how to improve the state of corporate ownership in Britain and said he would give it serious consideration.

The Ownership Commission, an independent body chaired by the left-leaning commentator Will Hutton, recommended that companies seeking a UK listing should be forced under existing rules to make sure that at least half of their shares are available to be freely traded.

That would prevent too much power becoming concentrated in the hands of an individual, the report said.

It also said Britain should use tax incentives to build up a German-style ‘mittelstand’ of middle-sized companies to support the economy.

The report said the PLC (public limited company) model of ownership encouraged short-termism and left businesses exposed to hostile takeovers.

Reporting by Rosalba O'Brien and Peter Griffiths; Editing by Greg Mahlich

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