Bond Pearce

Vince Cable has finally announced proposals to reform executive pay in quoted companies this week. Proposed measures include:

• remuneration reports to disclose a single aggregate remuneration figure for each director and explain how pay awards relate to the company's performance 
  
  
• a shareholder vote on how the company has implemented its approved pay policy in the preceding year, including the amounts paid out
  
  
• a binding shareholder vote on future pay policy
  
  
• annual re-election of directors
  
  
• remuneration reports to explain how companies have consulted and taken into account the views of employees when setting executive pay
  
  
• a binding shareholder vote on service contracts containing a notice period of longer than a year and for exit payments of more than 1 year's basic salary or the minimum contractual amount, whichever is the lower
  
  
• Financial Reporting Council to consult on revisions to the UK Corporate Governance Code and the Stewardship Code to include a bonus clawback mechanism for large public companies, preventing rewards for failure
  
  
• 2 first time directors to sit on boards to encourage diversity
  
  
• enforcement of current best practice, preventing executive directors from serving on the remuneration committees of other large companies

Reaction to the proposals has been mixed.  Many have welcomed the drive for increased transparency, simpler pay structure and greater boardroom diversity.  Concerns have been expressed that moving from advisory to binding shareholder votes could undermine the effective management of business.  Much of the detail for the proposed reforms still needs to be provided by Mr. Cable and it remains to be seen whether the proposals will have their intended effect of linking executives' pay explicitly and transparently to the performance of their companies.  Whatever the final outcome, it is clear that the debate on executive pay will remain in the spotlight for some time.