BUSINESS and investor groups yesterday welcomed plans to give shareholders binding votes on directors’ pay, which are intended to give firms’ owners a greater say in assessing business performance.
Business secretary Vince Cable announced the plan, which is set to be in place by 2014, arguing “there is compelling evidence of a disconnect between pay and performance in large UK listed companies.”
The proposals will see shareholders given a legally binding vote over directors’ pay packets every three years, as well as in every year in which the pay policy is changed.
They will vote on the whole package, including salary, incentives, bonuses, and severance arrangements, and the metrics against which performance will be gauged.
“This substantial package of measures strikes a balance, by giving shareholders increased transparency on pay and providing ways to hold Boards to account, without getting them bogged down in day-to-day micro-management,” said John Cridland from the Confederation of British Industry.
Small shareholders’ group ShareSoc also backed the plans, as it believes “Pay in some companies has become morally indefensible and this has been undermining sound business management.”
“It is also contrary to the interests of the owners,” said chairman Roger Lawson.
However, accountants’ body ICAEW claimed the move could be harmful.
“Demanding legally binding votes as a matter of routine could damage relations between shareholders and the remuneration committee,” said Jo Iwasaki.
“But there is a role for legally binding votes on an ad hoc basis, for example if a board were continuously ignoring the wishes of shareholders.”
And law firm Linklaters worries the plan “could discourage top performers from joining boards” because of the additional scrutiny involved.”
Labour’s shadow business secretary Chuka Umunna argued workers’ representatives should be added to remuneration boards to put further downward pressure on pay.
However, Cable pointed out that the plan calls for firms to report on whether they have taken steps to engage with employees.