Cable to tackle executive pay issue

Vince Cable, Secretary of State for Business, Innovation and Skills, has this week announced a package of measures to try to curb excessive pay for executives.

Under the new proposals:

• Shareholders will be given binding votes to block excessive pay proposals and payments for failures such as exit payments;
• Firms will have to justify high salaries with clearer and more informative reports;
• Companies will be asked to provide more information on the benchmarks used to set salaries for executives;
• Firms must report how spend on executive pay compares with other payouts such as dividends and business investment;
• Businesses must consult with employees on the issue of executive pay, and take into account their views;
• The Government will start a drive to place people from more diverse professional backgrounds onto company boards;
• The Government will look at reducing the number of current executive directors serving on companies’ remuneration committees;
• Clawback clauses will be introduced into all executive contracts so that pay can be recovered if the company does badly.

It is not yet clear if, or when, these proposals will be put into effect.

Mr Cable said of his reforms:

“The evidence is clear that business and investors recognise that there is a disconnect between top pay and company performance, and that something must be done. We cannot continue to see chief executives’ pay rising at 13% a year while the performance of companies on the stock exchange languishes well behind, and we cannot accept top pay rising at five times the rate of average workers’ pay, as it did last year. It is not Government’s role to micro-manage company pay, but there are things we can do to address what is a clear market failure.

Today I can announce a package of measures that the Government will take forward to tackle the issue on four fronts: greater transparency, so that what people are paid is clear and easily understood; more shareholder powers, such as the introduction of binding votes, so that shareholders can hold companies to account; more diverse boards and remuneration committees; and best practice led by the business and investor community. No proposal on its own is a magic bullet, but together they can enable a major transformation to get under way.”

A full transcript of Mr Cable’s speech can be accessed here.