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UK To Overhaul Executive Remuneration

by Robin Pilgrim,, London

31 January 2012

UK shareholders will be given more powers to block excessive pay proposals and payments for failure under new proposals from the Business Secretary, Vince Cable.

Announcing a package of measures aimed at tackling excessive executive pay, Cable said firms will also have to justify high salaries with clearer and more informative remuneration reports. Cable's plans aim at addressing the issue on four fronts: they will ensure greater transparency, so that what is paid is clear and easily understood; more shareholder power so that companies can be held to account; more diverse boards and remuneration committees (REMCOs), to tackle the status quo; and best practice led by the business and investor community.

To promote greater transparency, the government will require more information on what benchmarks companies use to set executive pay and how pay policy relates to company strategy and performance. Companies will have to produce a single figure for total pay and show how spend on executive pay compares with other payouts such as dividends and business investment.

The government will consult on giving shareholders binding votes on executive pay policies and exit payments worth more than one year’s salary. It will in future require companies to secure 75% shareholder support to pass the vote, up from the current 50%. The coalition will also look at requiring clawback clauses to be introduced in all contracts so that pay can be recovered if a company does badly.

In an effort to promote diversity, the government will launch a renewed drive to get more people from different professional backgrounds onto company boards. It will investigate reducing the number of current executive directors serving on other companies’ remuneration committees.

Companies will also be required to explain how they have consulted employees and taken account of employee pay when they set board pay. Employees will be encouraged to utilize their right to request that employers consult them on pay deals.

Speaking at the Social Market Foundation, Cable said he is "challenging this country’s world-class companies and executives to embrace the reforms I have outlined, and work with us to renew public trust in UK business".

TAGS: compliance | investment | business | commerce | law | banking | financial services | share schemes | employees | international financial centres (IFC) | United Kingdom | payroll | offshore | corporate governance | offshore banking | dividends | standards | corporate responsibility | services

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