Britain to grant binding powers to shareholders to curb excess remunerations
In a major victory for shareholders in UK, Business Secretary Vince Cable Wednesday announced plans to grant them new binding powers to curb excess remunerations to executives.
"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 said.
The move comes amid increasing shareholder activism and pressure on companies like WPP and Barclays to trim executive pays and perks.
Currently, shareholders can vote against executive pay rises, as was done in case of several companies this year, but the company is not bound by the vote.
Under the new legislation the government hopes to enact by October 2013, shareholders in future will have binding votes every three years to approve or reject plans for directors' remuneration as well as exit payments, or golden handshakes for those asked to leave. There is a provision for more frequent vote if companies change their policies.
The pay curb was widely backed by investors and directors.
The Labour opposition however criticized the government, alleging the proposal has been diluted on plans for annual votes.
"Is it not the case, that this will simply incentivise Boards to draft policy as broadly as possible, so as to avoid anything other than a triennial vote?' said shadow business secretary Chuka Umunna in parliament.
"Can the Secretary of State tell us exactly how he would define a "change" to remuneration policy? And who will be the arbiter as to whether there has been a change of policy in each company the Board or the shareholders?" Umunna sought to know.
Gavin Oldham of retail stockbroker The Share Centre also expressed disappointment that votes would only be every three years.
Stating that he had been "greatly encouraged by the 'shareholder spring', Cable described the proposal as the "most comprehensive reforms of the framework for directors" remuneration in a decade as it aimed to help shareholders to have more powers to hold under-performing companies to account.
Henceforth companies will have to report a single figure for the total pay directors received for the year, including bonuses and long term incentives. Details of whether executives met performance measures will also have to be revealed alongside these numbers.
Business groups and analysts welcomed the move. .
Simon Walker of the Institute of Directors said "This is not about having a bun fight for its own sake. The proposals reflect a reasonable balance."
The Investment Management Association's Liz Murrall said, "Institutional shareholders will now have to rise to the challenge of ensuring that pay policies are meaningful."
Source: Britain News.net
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