The British government will propose legislation to give company shareholders a binding vote on CEO and executive pay and severance packages, the country's business minister said Wednesday.
The proposals follow much criticism of soaring executive pay, particularly at banks, and revolts by some shareholders against the rich compensation of company leaders.
"There is compelling evidence of a disconnect between pay and performance in large U.K.-listed companies. It is right that the government acts to address this clear market failure," Business Secretary Vince Cable said.
'A small number of people have done extraordinarily well in the [financial] crisis, often undeservedly, and large numbers of other people who played no part in causing the crisis have been hurt by it' —U.K. Business Secretary Vince Cable, last November
British shareholders currently have only an advisory vote on remuneration.
In the latest sign of shareholder rebellion, the pay package of Martin Sorrell, chief executive of advertising giant WPP PLC, was rejected by 59.5 per cent in such a vote last week. Sorrell had been awarded a 60 per cent rise in pay and other benefits to $10.9 million for 2011. That included a 30 per cent rise in his basic salary to $2.1 million, a $3.2 million annual bonus and $4.8 million in deferred shares and other benefits.
At the annual meeting of financial behemoth Barclays, 31 per cent of shareholders voted against the bank's pay structure, which included $27.3 million for CEO Bob Diamond. Insurer Aviva suffered a 54 per cent vote against its remuneration report, and chief executive Andrew Moss stepped down shortly afterward.
Cable, a Liberal Democrat MP in Conservative Prime Minister David Cameron's coalition cabinet, said shareholders would vote every three years on company pay policies and the policy for severance payments. That vote would be binding on the salaries the company pays its top execs.
If a company wanted to stray from its policy, it could hold a vote in an intervening year.
Edinburgh-based investment management firm Standard Life Investments, which has criticized some company pay plans, welcomed the announcement. "It is very important that shareholders use their new rights to hold boards and their remuneration committees to account," the company said.
Britain's Labour Party is calling for the mandatory votes on company pay to be annual. Labour also wants the legislation to require support from 75 per cent of stockholders for a salary-approval vote to pass, instead of a simple majority.
Cable has had executive pay in his sights for months. Last November, amid the Occupy movement's outcry against corporate excess, he told the BBC that skyrocketing pay for executives while average workers suffer job and benefit cuts "causes a lot of public anger and indignation, and we're seeing some of that spill over into protests."
At the time, salaries had rocketed up by 75 per cent over the prior two years for senior executives at Britain's top 100 publicly traded companies. Meanwhile, unemployment was at a 17-year high in the country, with average wages falling, after accounting for inflation.