UK starts six-week consultation on final binding shareholder pay vote laws

Final review to examine impact, costs and benefits.

The UK government has launched a six-week consultation to help it formulate sound regulation to curb excessive executive pay and align it more closely with company performance.
In January, the government announced that it would be giving shareholders a binding vote on executive pay amongst other measures to get investors to police excessive board rewards: Link to RI story
The consultation is now looking for evidence on the impact, costs, benefits and likely behavioural effects of these proposals. It closes on 27 April 2012, after which the Department of Business Innovation and Skills (BIS) will confirm the planned new laws. At the same time, the government will publish draft regulations on the content of directors’ remuneration reports; another key change the government says will bring greater transparency to top-level pay.
The major regulations proposed in the consultation include an annual binding vote on future remuneration policy alongside an advisory vote on how pay policy was implemented in the previous year. The government is also proposing a binding vote on exit payments of more than one year’s salary in a bid to stop so-called rewards-for-failure. It said it was also looking at how to increase the level of support required on votes on future remuneration policy to increase the likelihood that shareholders could secure a 50% binding majority in egregious cases. Under the proposals, companies will also have to report each year on how they have responded to shareholder concerns and taken previous votes into account.UK Business Secretary, Vince Cable said: “Good corporate governance is vital to creating the right environment for long-term, sustainable growth. Shareholders are at the heart of the UK corporate governance framework, so it’s appropriate that we put more information and power in their hands. I have no problem with business celebrating success and rewarding talent, but I have heard frustration from all circles that director’s pay goes up when times are good, and yet it still goes up when performance is poor. I want shareholders to feel empowered to prevent rewards for mediocrity or failure.”
The Institutional Investor Committee (IIC) – comprising the ABI (Association of British Insurers), IMA (Investment Management Association) and NAPF (National Association of Pension Funds), said it welcomed measures to address remuneration excesses in the board room: The IIC fully supports BIS’ aims of encouraging more engagement between companies and shareholders, and creating a strong link between incentives and performance.” It said it would further develop the Principles of Remuneration issued by the ABI last year.
Douglas Ferrans, Chairman of the IIC, said: “Shareholders are primarily concerned with the returns from sustainable business success and executive management should only be rewarded on this basis – payment for failure is not acceptable in company boardrooms. It is essential that great companies are created and preserved for the benefit of shareholders and appropriate incentives form an important part of this. We support boards in achieving this success but will also hold them to account on this and their remuneration through active engagement and voting.”
Link to BIS consultation