Company Shareholders to get binding votes on Directors’ pay.

Reforms are being introduced to “address failures in corporate governance”, by giving shareholders the power to engage with companies more effectively. The reforms have been put forward after a March 2012 consultation paper was published, highlighting the problem of rising executive pay which is not linked to performance.

In addition to a binding shareholder vote on pay, the measures announced by the Department of Business, Innovation and Skills include:

• a requirement for companies to explain their approach to exit payments clearly, and which will also be subject to a binding vote. Upon a director leaving, companies will be required to publish a statement of the payments that director received, and companies will not be able to pay them more than the figure agreed by shareholder;
• shareholders will continue to have an annual vote on how pay policy was implemented during the previous year;
• companies will be required to report a single figure for total director pay for each year. A report on whether the directors met performance measures must also be published alongside company performance.

To introduce the reforms, the government is to bring forward amendments to the Enterprise and Regulatory Reform Bill, which is currently before Parliament. It is anticipated that the reforms will be in place by October 2013.

Geoff Kew

Published on 22/06/2012