Reaction to the government's announcement on executive remuneration
Secretary of State for Business Vince Cable has announced plans to reform executive pay and introduce binding shareholder votes. Companies will also have to publish a simple figure showing how much executives get paid, as well as revealing pay for executives who were sacked or quit the company.
Here is some of the reaction . . .
John Cridland, CBI Director-General, said:
“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.
“The introduction of a binding vote is a big change in the relationship between shareholders and companies, but rightly focuses on Board pay strategy, not individual pay packages. Requiring a vote every three years, unless pay plans change, will allow shareholders to stay focused on the big picture.
“The government has been persuaded that binding votes should be on a straight majority, which will ensure that Boards are not at the mercy of activist minorities.
“Making sure that exit payments are in line with agreed pay strategy will help to prevent rewards for failure, but it’s right that companies have the flexibility to act in a timely fashion when managing the departure of directors.
“A single figure for total reward should help give shareholders the information they need to judge whether pay is in line with performance. However, as pay packages reflect different circumstances across distinct sectors, the single figure will need to take this into account.
“These measures to improve transparency will help ensure proper attention is given to what signals pay decisions send out to the wider company and the community in which it operates.”
Andrew Quayle, Partner and reward specialist, Eversheds, said:
“Companies will be relieved that months of speculation surrounding the executive pay reforms are coming to an end and that concrete proposals are to be published. There will also be many companies who will be satisfied with having a binding shareholder vote every three years rather than Mr Cable’s original suggestion of an annual vote. It was felt that an annual vote could have a destabilising effect on management teams and make it more difficult for companies to plan ahead.”
High Pay Centre www.highpaycentre.org
Deborah Hargreaves, Director of the High Pay Centre, said:
“It's disappointing that Vince Cable has backed off from imposing an annual binding vote on executive pay packages. There is a groundswell of public anger over excessive pay for company bosses at a time of biting economic austerity. We should not waste the momentum that has built up for far-reaching change to pay at the top.
“If shareholders are only voting every three years, it is vital that they are voting on something meaningful and that it doesn't just turn into a box-ticking exercise. However, we have always questioned whether shareholders can hold companies to account on their own.
“Even last year at a time of heightened scrutiny on pay, bosses' packages still rose by 12% while the rest of the workforce saw only a 1% increase in pay. There needs to be proper reform of remuneration committees including an elected employee, to present the sort of challenge that will tackle excessive pay.
“The publication of a single figure for each executive's earnings is a good step forward, but will not be enough on its own to bring down top awards.
Simon Walker, Director General, Institute of Directors, said:
“The introduction of a binding shareholder vote on executive pay policy provides shareholders with an excellent opportunity to assert their interests as owners. This is not about having a bun fight for its own sake, but allowing the people who own a company to have a real say over a company’s performance against longer-term strategic objectives.
“The government’s proposals reflect a reasonable balance between improving the accountability of executive pay and encouraging a longer-term business perspective. These measures will help to rein in the trend in some large firms for rewards that simply aren’t justified by performance – and in so doing, they will help to strengthen the reputation and practice of business.”
Labour Party www.labour.org.uk
Chuka Umunna MP, Labour's Shadow Business Secretary, said in response to reports of the government's executive pay proposals:
“It is disappointing that the government is watering down its corporate governance proposals with an embarrassing climbdown on the proposal for annual binding shareholder votes on executive pay. On its own, this measure would not have been sufficient but it would have been a step in the right direction.
“At a time when shareholders are becoming more assertive and engaged, the government is failing to do all it can to empower them to hold boards to account and act as a check against excess and rewards for failure. Now is not the time to be rowing back from reform, and Labour has called for ministers to go further.
Christopher Johnson, UK Head of Mercer’s Human Capital business, said:
“We support the government’s move to encourage greater dialogue on executive remuneration between companies and their shareholders. By making the binding vote on the remuneration policy effective for three years, some of the difficulties we foresaw will be mitigated - in particular returning to shareholders with amended proposals in the event of a negative vote.
“Current levels and approaches to executive pay reflect a market failure. We understand the government’s focus on investor responsibilities but we believe that board effectiveness is equally important and would like to see the government and companies put a greater focus on this area.”
“We are concerned that the new requirements may restrict companies’ ability to adapt their reward offerings to reflect changing business environments and markets for talent. However, a triennial binding vote should encourage companies to adopt a longer term and transparent approach to their executives’ pay.”
Sean O’Hare, Remuneration Partner, PwC, said:
“The good news for business is that the government has listened to their main concerns by setting the binding vote threshold at 50% and including termination payments within future policy rather than as a separate vote. This is a much more workable solution and should help reduce the burden on companies. It is encouraging that the proposals help support UK businesses by allowing them to operate in agreed guidelines, rather than being overly prescriptive.
"Reducing the vote to every three years, or annually if changes to the remuneration policy are made, is a sensible move. It may cause remuneration committees to benchmark less frequently which could reduce the inflationary effect of pay comparisons.
“It is questionable whether the proposals will lead to a wholesale reduction in executive pay. As recent events have shown, investors already have the tools to hold companies to account on pay and the new proposals don't add that much. There's a risk that expectations have been raised that won't be met. Many UK companies operate in a global market and can't just ignore that. But if pay doesn't fall, the government may come under pressure to have another go in a year or two.
“We are still awaiting the detailed legislation to go through parliament, so as always the devil will be in the detail.”
Want to know more?
A detailed statement of the government’s policy on directors’ pay is available at www.bis.gov.uk/policies/business-law/corporate-governance/executive-pay.
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