Cable: shareholders should get binding vote

Shareholders will be given more powers to hold companies to account under plans outlined yesterday by the business secretary.

Vince Cable said the government would consult on giving shareholders a binding vote on both future pay policy, the real numbers on potential pay-outs directors could receive, any director's notice period longer than one year and on exit payments of more than one year's salary.

He said: "The evidence is very clear that business and investors recognise there is a disconnect between top pay and company performance and something must be done."

The Liberal Democrat minister said the government would consider raising the level of support companies need to pass pay packages to 75% of all votes cast.

The government will legislate to force companies to publish "more informative" remuneration reports, including a single figure for executive's pay.

Cable said he would ask the Financial Reporting Council to revise the corporate governance code so all large companies would have claw-back procedures in place.

The business secretary's announcement comes after a week of debate on the nature of "responsible capitalism" from the leaders of all three main political parties in Westminster.

Responsible investment campaigners FairPensions and PIRC welcomed the announcement but urged the government to go further and demand large shareholders publish their own voting records.

FairPensions chief executive Catherine Howarth said: "Government proposals for a binding vote on executive pay are welcome but to pretend that this alone will solve the high pay problem is either naïve or disingenuous."

PIRC managing director Alan MacDougall commented: "There is little doubt that the ideas put forward could help rein in top pay if enacted. However, if the strongest emphasis is put on giving shareholders better information and more powers then a huge amount rests on the voting decisions of asset managers. With notable exceptions, their recent voting behaviour does not lend confidence that they will shoulder the burden effectively."

Major institutional investors also welcomed the measures.

Legal & General Investment Management director of corporate governance Sacha Sadan said: "We welcome the government's proposals in tackling executive pay. This has been an area of concern on which we regularly engage with companies, and where we have not been happy with the companies' proposals we have voted against the remuneration report."

Investment Management Association director of corporate governance and reporting Liz Murrall commented: "IMA welcomes the government's announcement on taking measures to strengthen accountability and address concerns in relation to excesses in executive directors' remuneration. We recognise that reforms are needed, particularly to improve transparency and address the lack of a clear link between pay and performance."

But National Association of Pension Funds chief executive Joanne Segars cautioned: "The introduction of a binding vote needs to be handled very carefully, and shareholders need to know more about what it means. A vote must not impede the effective management of businesses, or the constructive dialogue between shareholders and boards."