Queen’s speech: New measures to make shareholder votes on directors’ pay binding
The Queen has today delivered the Speech from the Throne outlining the government's legislative programme for the parliamentary year ahead. The House of Commons will now begin five days of debate on the contents of the Speech.
“Creating the right conditions for businesses to grow and succeed” is at the centre of new business legislation announced today in the Queen’s Speech. Among the key elements are measures to reform directors’ pay.
The Enterprise and Regulatory Reform Bill would “strengthen the framework for setting directors’ pay by introducing binding votes”. Under the proposals, shareholders would be able to vote down directors' pay they deemed excessive. Currently, they only have a non-binding vote on remuneration.
"The government will amend company law so that shareholder votes on big businesses' prospective remuneration plans for executives will be binding," said the BBC's business editor Robert Peston.
He added that Business Secretary Vince Cable had not yet decided on the voting threshold to force change. Cable told the BBC: "There is a lot of anger around at the way in which some executives, not all, are being paid way in excess of their company's performance, and investors - in many cases insurance companies and pension funds representing millions of people - are becoming more active. That's healthy, that's how this problem should be dealt with."
John Cridland, CBI Director-General, said: “Shareholder power is now being felt in the boardroom, and the government should be careful that new legislation supports accountability to shareholders but does not try to turn them into micro-managers.”
He added: “To be workable, the threshold for forward-looking binding votes should be a simple, straight majority and the plans to introduce binding votes on exit payments should be dropped.”
Audrey Williams, Partner at international law firm Eversheds, said: “Despite opposition from some business quarters, the government is to press ahead with proposals to increase shareholder power over pay, a sign that patience has run out with institutional investors taking control of this issue. How this will work in practice has not been elaborated upon today and will not be without practical difficulty. In principle, shareholders will be given new powers to hold company boards to account on executive pay; their degree of influence as yet undetermined but involves an ability to vote upon the directors’ remuneration report.”
She added: “Other, no less controversial proposals have received no specific mention today, such as the government’s aims to improve pay transparency and diversity on the boardroom. It remains to be seen if these will also be pursued in the forthcoming Enterprise and Regulatory Reform Bill but, as with the shareholder rights, for which we do now have clear commitment, the ‘devil will be in the detail’ and that detail will be keenly awaited in the coming weeks.”
Want to know more?
Full details of the Queen's Speech 2012 and information of other announcements and Bills is available at http://number10.cabinetoffice.gov.uk/engage/queens-speech-2012/
Update on the Regulation of Pay in Financial Services
Pay in the financial services sector continues to provide ample material for the media, with high-profile bank executives seemingly queuing up to waive their bonuses, whether out of a sense of honour or necessity. Generally bankers’ bonuses, af...