"We cannot continue to see chief executives' pay rising at 13 per cent a year while the performance of companies on the stock exchange languishes well behind" ... Vince Cable. Photo: AFP
THE British government is pushing to give shareholders greater powers to vote on executive pay, as part of a broader plan to rein in corporate compensation.
The Business Secretary, Vince Cable, has outlined four proposals to revamp pay practices and make compensation more transparent.
Mr Cable told Parliament that companies should publish a single pay figure for top executives and rethink the make-up of compensation committees.
He also proposed companies adopt clawback mechanisms that would allow them to recoup bonuses if top executives fail.
Remuneration practices represented a ''clear market failure'', Mr Cable said. ''Businesses and investors recognise that there is a disconnect between top pay and company performance, and that something must be done.''
His proposals come amid growing public outrage in Britain over excessive corporate pay when many households are forced to cut back in the economic downturn.
Several banks, including the government-controlled Royal Bank of Scotland, are set to hand out million-pound bonuses to chief executives. In a rare departure, the chief executive of Lloyds Banking Group, Antonio Horta-Osorio, turned down his 2011 bonus after he took medical leave and the bank's performance missed some targets.
''We cannot continue to see chief executives' pay rising at 13 per cent a year while the performance of companies on the stock exchange languishes well behind,'' Mr Cable said. ''And we can't accept top pay rising at five times the rate of the average worker's pay as it did last year.''
Britain's opposition Labour Party welcomed Mr Cable's proposals to restrain executive pay but said they did not go far enough. Chuka Umunna, Mr Cable's counterpart in the opposition, said employees should be part of remuneration committees and more drastic changes were needed to make the system fairer.
The Prime Minister, David Cameron, has called for bonuses restraint at a time of rising unemployment and austerity. But the government said it would not micromanage corporate pay policies.
Under Mr Cable's proposals, shareholder votes on executive pay would be binding. The plan would also increase the threshold for approval to 75 per cent from 50 per cent.
Mr Cable said he wanted to encourage companies to accept at least two board members that had not previously held board positions. He is also pushing for companies to publish detailed explanations of pay practices, including whether compensation relates to company performance.
Some investors, including Fidelity Worldwide Investment, called this month for an urgent review of executive pay, saying excessive remuneration hurts confidence in management teams.
The Confederation of British Industry, a business lobby group, also said it welcomed the government proposals.
''We have been clear that executive pay must always be fair and transparent, and that high pay must be for outstanding, not mediocre, performance,'' the director general of the lobby group, John Cridland, said. ''Millions for mediocrity does a disservice to the reputations of hard-working businesses.''
The New York Times
