Vince Cable outlines measures to crack down on executive pay

Business secretary Vince Cable has outlined a raft of measures around executive pay, including proposals to increase the power of shareholders and demystify complex pay deals.

Cable said that shareholders should get a legally binding vote on boardroom pay policies (including how performance in measured), exit payments worth more than one year’s salary and clawback clauses.

Members of the business community, however, believe that such binding votes need to be handled carefully. Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said: “A vote must not impede the effective management of businesses, or the constructive dialogue between shareholders and boards.”

Sean O’Hare, remuneration partner at PricewaterhouseCoopers (PWC), said: “The most significant change is the binding vote for shareholders on future pay. This will force much greater engagement between organisations and shareholders, as no one will want the figures subject to vote to come as a surprise. It is true shareholders will be loathe to use the binding vote but for this reason they will want to be involved beforehand in the decision.”

Cable wants to see the corporate governance code revised to include a bonus clawback mechanism of executive bonuses. It was suggested that there should be more information on what benchmarks companies use to set pay and a single figure for total pay should be produced.

John Cridland, director general of the Confederation of British Industry (CBI), said: “We have been clear that executive pay must always be fair and transparent, and that high pay must be for outstanding, not mediocre, performance. Millions for mediocrity does a disservice to the reputations of hard working businesses.

“Introducing a single remuneration figure is a positive step forward and will help achieve greater transparency.”

Calls were also made for organisations to diversify the board and for two places on each board to be reserved for people who have not been a director. Cable also wants current executive directors to be barred from other companies’ remuneration committees.

The government will also pressurise companies to explain how they have consulted with employees when they set boardroom pay.

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