By Daniel Hunter

The Department for Business, Innovation & Skills (BIS) has launched a consultation on measures to give company shareholders greater influence over executive pay, through enhanced voting rights.

This follows extensive discussion with business leaders, investors, academics, governance experts and a range of others, who agree there is a problem with rising executive pay which is not linked to performance.

The consultation sets out a range of measures including:

· An annual binding vote on future remuneration policy

· Increasing the level of support required on votes on future remuneration policy

· An annual advisory vote on how pay policy was implemented in the previous year

· A binding vote on exit payments of more than one year’s salary

Under these proposals, companies will have to report each year on how they have responded to shareholder concerns and taken previous votes into account. The objective is to promote better engagement between companies and those that invest in them, and create a stronger link between pay and performance.

“Good corporate governance is vital to creating the right environment for long-term, sustainable growth. Shareholders are at the heart of the UK corporate governance framework, so it’s appropriate that we put more information and power in their hands," Business Secretary, Vince Cable said.

“I have no problem with business celebrating success and rewarding talent, but I have heard frustration from all circles that director’s pay goes up when times are good, and yet it still goes up when performance is poor.

“I want shareholders to feel empowered to prevent rewards for mediocrity or failure.”

These measures will require primary legislation. The purpose of the consultation is to seek evidence on their potential costs and benefits, and the likely impact on business.

Today’s proposals are part of a wider package of measures announced by the Business Secretary in January, aimed at addressing corporate governance failures in the way executive pay is set in UK publicly quoted companies.

The total package included:

· Empowering shareholders and promoting engagement through enhanced voting rights

· Greater transparency in directors’ remuneration reports

· Increasing the diversity of boards and remuneration committees

· Encouraging employees to exercise their right to Information and Consultation Arrangements

· Working with investors and business to promote best practice on pay-setting

Over the next few weeks the Business Secretary and officials will meet investors, non-executive directors, company secretaries, HR directors, lawyers and other experts to discuss the Government’s proposals.

The consultation closes on 27 April 2012. BIS will then confirm the precise measures Government expects to take forward in primary legislation.

Draft regulations to determine the content of directors’ remuneration reports will be published at the same time. Together, these measures will create a more robust framework within which executive pay is set, agreed and reported on.

Join us on
Follow @freshbusiness