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Gov't "strengthens" investors hand with binding vote

Companies will have to publish a single figure for total director pay under the reforms for executive pay

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Business secretary Vince Cable on Wednesday gave shareholders a binding vote every three years on “excessive” executive pay and exit payments in a move seen by many as a climb-down from plans for an annual vote.

Cable told parliament on Wednesday that there was “compelling evidence of a disconnect between pay and performance in large UK listed companies,” as he outlined his plans to hand investors new powers.

The new legislation, which is planned to come into force October 2013, will require companies to hold at least a triennial binding vote on pay policy and exit payments, provide investors with better information on how directors’ pay compares to the wider workforce and report a single figure forthe total pay.

“At a time when the global economy remains fragile, it is neither sustainable nor justifiable to see directors’ pay rising at 10 per cent a year, while the performance of listed companies lags behind and many employees are having their pay cut or frozen,” Cable told parliament on Wednesday, in reference to a new study on executive pay that showed directors pay rising as share prices fell.

Althought supportive of the reforms as s step in the right direction investor lobby groups feel Cable missed an opportunity. Alan MacDougall, PIRC's managing director,: “We continue to believe that the requirement for an annual binding vote would have been much simpler for both companies and investors, but the system proposed should have sufficient safeguards to make it effective.”

Investors have in recent months become increasingly active in protesting against what they see as “excessive” payouts at a time of falling share prices and weak or no dividends.

Victims of the “Shareholder Spring” have been Trinity Mirror’s Sly Bailey, Aviva’s CEO Andrew Moss who have both left their companies because of an investor vote and Sir Martin Sorrell, among others, who have faced a shareholder backlash over plans for a pay rise.

Cable added: “We have also seen many companies engaging constructively in the face of this opposition. This is an important step for encouraging improved pay discipline.”

The government will introduce the reforms through amendments to the Enterprise and Regulatory Reform bill, currently before parliament.

The business secretary urged investors to continue the momentum of the “shareholder spring” but if evidence suggested institutional investors were failing in their fiduciary duties he would “consider further action if the number of investors volunteering to disclose their voting records does not continue to increase”.

Read also:

SPECIAL REPORT - The Investor Spring




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