Accessibility Links

Who has the power when it comes to executive pay?

18 / 12 / 2012
The issue of hefty bonus payouts for senior members of staff has rarely been out of the news this year.

From the proposed £963,000 reward for Royal Bank of Scotland boss Stephen Hester – a payment branded 'bewildering' by London mayor Boris Johnson – to the millions in bonus shares for Barclays' boss Bob Diamond, it is little wonder that the public has expressed concern.

Figures from the Trades Union Council show that the ratio of top executive pay to average employee pay has surged from 47:1 in 2000 to 102:1 in 2011 and a survey by the Share Centre revealed that 95 per cent of institutional investors believe that executive pay has become too high.

Now, business secretary Vince Cable has announced plans which will allow shareholders to express their disapproval, by forcing companies to have binding votes on executive pay every three years.

It follows a string of industry incidences in which investors from various organisations voted against company remuneration reports.

Perhaps the most notable example of this so-called shareholder activism was when nearly 60 per cent of WPP shareholders voted against chief executive Sir Martin Sorrell's annual pay packet of £6.8 million.

Currently, shareholder votes are advisory and can be ignored by the company in question, but Mr Cable's new plans will require a compulsory investor poll every three years.

Binding votes would require the support of the majority of shareholders and companies would not be allowed to make payments outside of its scope.

"At a time when the global economy remains fragile, it is neither sustainable nor justifiable to see directors' pay rising at ten per cent a year while the performance of listed companies lags behind and many employees are having their pay cut or frozen," he told the House of Commons.

While this move appears to be giving more power and control to shareholders, it has already drawn criticism from Labour, who branded it a 'climbdown' from initial plans to have an investor poll annually rather than every three years.