UK to give investors rights to veto pay

Tim Castle London

Britain would legislate to give shareholders the power to reject the pay deals of company directors in a bid to emphasise the link between remuneration and performance and calm public anger over soaring executive earnings, Business Minister Vince Cable said yesterday.

The move puts Britain in the vanguard of a clampdown on corporate pay that has seen investors voicing their disapproval at boardroom pay levels at FTSE 100 companies, which have quadrupled over the past decade, far exceeding the performance of share values.

The law will strengthen the hand of shareholders who have only an advisory and non-binding vote on directors’ packages.

“At a time when the global economy remains fragile, it is neither sustainable nor justifiable to see directors’ pay rising at 10 percent a year, while the performance of listed companies lags behind and many employees are having their pay cut or frozen,” Cable said.

Measures have already been taken to limit the level of British bankers’ bonuses following the financial crisis and the EU is considering similar proposals to boost shareholder control over executive pay.

Pay increases for top executives in the US have also slowed in response to shareholder pressure, although they still gained by 14 percent last year.

Public anger over generous pay for senior management helped spur the anti-establishment “Occupy” movement, which launched protests globally, including in London and New York’s financial districts.

Cable said companies listed publicly in Britain would have to seek the approval of shareholders to award compensation packages to directors in an annual vote, under laws that could come into force as early as 2013.

Companies will be able to limit the shareholders’ vote on pay to once every three years, provided they make no change in compensation arrangements for directors.

The opposition Labour party accused Cable of making a U-turn on the binding votes, which he had originally proposed should be held every year. Cable rejected the criticism, saying the potential extension to a vote every three years would encourage companies to stick to a clear and long-term pay strategy, putting a brake on what he called an “annual upward pay ratchet”.

Shareholders, led by insurers and large pension funds, have become increasingly critical of what they regard as overgenerous pay for senior executives, especially where corporate performance has been disappointing. – Reuters