Vince Cable unveils reforms to crack down on executive pay

The business secretary has announced plans to force companies to have binding votes on executive pay every three years.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013

Vince Cable has today pushed through new regulations that empower shareholders to have a real say on executive pay, and ensure that their vote is legally binding for three years. No longer will such votes be simply ‘advisory’. These days, it’s power to the people.  

Cable’s reforms come in the wake of the so-called Shareholder Spring, which saw investors protest the pay deals of a raft of high profile chief executives, from Aviva’s Andrew Moss and Trinity Mirror’s Sly Bailey to Bob Diamond and Sir Martin Sorrell. But while the move is a victory over excessive pay, it could also be a real headache for company bosses, reducing their ability to react to market conditions and incentivise their top-level execs, leaving them tied in to three-year deals.

In this brave, new world, shareholders will be able to veto the pay proposals they view as excessive. They will also get a more comprehensive understanding of all the variables feeding into executive pay: a single figure will now be published annually, bringing a new era of transparency to the pea soup that can render corporate remuneration opaque to outsiders.

While Cable’s detractors (the Labour party, mainly) argue that the move represents a climb-down on his previous standpoint on annual compulsory votes, Cable reckons the reform is the best of two worlds: it ‘strengthens the hand of shareholders to challenge excessive pay’ while ‘not imposing unnecessary regulatory burdens,’ he says.

‘Top pay got out of control, most obviously in the banking sector, but also elsewhere in corporate Britain,’ he continues. ‘It was irrational and damaging and it was necessary that shareholders should have the confidence to act.’

That’s a great speech, Vince. And it's hard to argue for the status quo as far as executive pay goes - it has been rising inexorably despite often very indifferent corporate performance. But the question remains over whether shareholders are the best mechanisms for implementing systemic restraint. We'll have to wait and see. 

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