BIRMINGHAM (Reuters) - British companies will be required to publish more details on the pay packages of top executives under a government drive to fix a “disconnect” between remuneration and corporate performance, Business Secretary Vince Cable said on Monday.
Pay at the top of Britain’s biggest companies has soared in recent years while salaries for workers have barely kept pace with inflation, a politically sensitive issue while the coalition pursues a tough deficit-cutting austerity program.
“The disconnect between pay and long-term performance suggests that there is something dysfunctional about the market in executive pay or a failure in corporate governance arrangements,” Cable said in extracts of a speech released in advance.
“We want to explore what is causing it and how it can be addressed,” he added.
The announcement, due to be made to members of Cable’s Liberal Democrat party at their annual conference, follows previous coalition moves to limit the high level of bonuses paid to bankers, blamed for precipitating the 2008 financial crisis.
It comes as the center-left Lib Dems seek to boost their low poll ratings by ruling out cutting top income tax rates for the most wealthy - an ambition of their Conservative coalition partners - before reducing taxes for the low-paid.
The public would only accept the government’s austerity program to reduce the deficit inherited from the banking crisis if the cuts were seen to be fair, Cable said.
“There is a great sense of grievance that workers and pensioners are paying the penalty for a crisis they did not create. I want a real sense of solidarity, which means a narrowing of inequalities ... and the wealthy must pay their share,” he added.
In recent weeks Cable has been meeting institutional investors to see how to curb what he recently described as “ridiculous levels of remuneration” that were going unchallenged at companies despite little evidence of a correlation with performance.
Bonuses for senior executives at leading UK companies jumped from 48 percent to 90 percent of their salaries between 2002 and last year for the same level of performance, Britain’s High Pay Commission said this month.
Cable will now seek wider views on how to address the issue, including giving shareholders the right to vote down directors’ pay packages.
At present shareholders can vote on the remuneration of executives but their decision is not binding on the company.
The government will also propose tougher disclosure in company reports from October 2012 on the breakdown of director’s pay packages.
Remuneration committees would be required to justify the pay plans, as well as showing how much executives would be paid in the coming year if performance targets were met.