* Shareholders to get binding vote on directors'
* Vote limited to once every three years if no changes to
* Business minister says soaring pay rises not justifiable
By Tim Castle
LONDON, June 20 Britain will legislate to give
shareholders the power to reject company director pay deals in a
bid to improve the link to performance and calm public anger
over soaring executive earnings, Business Secretary Vince Cable
said on Wednesday.
The move puts Britain in the vanguard of a clampdown on
corporate pay that has seen investors voicing their disapproval
at FTSE 100 boardroom pay levels which have quadrupled over the
past decade, far exceeding the performance of share values.
The plans will strengthen the hand of shareholders who
currently only have an advisory and non-binding vote on
"At a time when the global economy remains fragile, it is
neither sustainable nor justifiable to see directors' pay rising
at 10 percent a year, while the performance of listed companies
lags behind and many employees are having their pay cut or
frozen," Cable said.
The move follows measures to limit the level of banker's
bonuses following the financial crisis and comes as the European
Union considers similar proposals to boost shareholder control
over director pay.
Pay increases for top executives in the United States have
also slowed in response to shareholder pressure, although they
still gained by 14 percent in 2011.
Public anger over generous pay at the top of companies
helped spur the anti-establishment "Occupy" movement which
launched protests around the world including in London and New
York's financial districts.
Cable said companies listed publicly in Britain would have
to seek the approval of shareholders to award compensation
packages to directors in an annual vote, under laws that could
come into force as early as 2013.
Companies will be able to limit the shareholders' vote on
pay to once every three years, provided they make no change in
compensation arrangements for directors.
The opposition Labour party accused Cable of making a
"U-turn" on the binding votes, which he had originally proposed
should be held every year.
Cable rejected the criticism, saying the potential extension
to a vote every three years would encourage companies to stick
to a clear and long-term pay strategy, putting a brake on what
he called an "annual upward pay ratchet."
Shareholders, led by insurers and large pension funds, have
become increasingly critical of what they regard as overgenerous
pay for senior executives, especially where corporate
performance has been disappointing.
In recent months investors have unleashed a wave of negative
votes over pay that have been dubbed Britain's "Shareholder
Spring" in a backlash that has cost the jobs of executives as
Aviva boss Andrew Moss, and Sly Bailey, head of newspaper
group Trinity Mirror.
Last week investors in the world's biggest advertising
agency WPP rejected Chief Executive Martin Sorrell's 6.8 million
pound ($10.6 million) pay award. The company says it will now
consult with shareholders over their concerns.
The government has said for some months it planned to boost
shareholder's sway over compensation, but had held back
publication while it consulted with industry and investors over
The new binding vote will also cover the level of potential
exit payments - frequently criticised as "rewards for failure"
- and shareholders will in addition have a second, non-binding,
vote in judgement on the levels of past remuneration.
If a company fails the advisory vote on past pay, it will
have to resubmit its overall compensation policy to shareholders
in their binding vote the following year.
Companies will also have to publish a single figure of
remuneration for each director, so that investors do not have to
search annual reports to calculate total rewards, and publish a
chart comparing chief executive pay and company performance.
However, Cable dropped plans requiring companies to win a
majority beyond 50 percent -- perhaps as high as 75 percent --
to get their future remuneration plans accepted, saying it had
proved legally complicated and would have allowed minority
shareholders to "hold companies to ransom".