Business secretary Vince Cable has put forward a package of reforms which the coalition government hopes will address the ‘failures’ that currently exist in corporate governance.
According to Cable, the new legislation will empower shareholders to ‘engage effectively’ with companies on the issue of pay.
The new framework is set to give shareholders binding votes on pay policy and exit payments in the hope that it will allow for the holding to account of companies and prevent rewards for failure.
Further changes include increasing transparency to make sure that what people are paid is easily understood and that the link between pay and performance is ‘clearly drawn’.
Research from sister title Growth Company Investor in February showed that the median salary for a chief executive on the AIM stock market passed £200,000 for the first time, up from £190,300 the previous year, and an all-time high.
The findings also revealed that some CEOs at companies with the biggest losses still took home substantial sums. JJB Sports lost £181 million in 2011 on turnover of £363 million, yet Keith Jones received £620,000, three times the median CEO salary for a company of its size.
At ZincOx Resources, executive chairman Andrew Woolett pocketed £309,000 in total remuneration despite the company reporting a pre-tax loss of £111 million.
Cable comments, ‘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.’
The minister says that the new framework follows on from a national debate, which was started in January 2012, aimed at encouraging shareholders to become more actively engaged with company owners in better aligning directors’ pay with performance.
He adds, ‘I have been greatly encouraged by the ‘shareholder spring’ and I want to see that momentum sustained. That is why I am bringing forward legislation to strengthen the powers of shareholders through a binding vote on pay.’
The new reforms will be introduced by the government through amendments to the Enterprise and Regulatory Reform Bill and are expected to be enacted by October 2013.
