24 Jan 2012
Helga Breen comments on executive pay proposals
Following Vince Cable announcing the government's response to its consultation on measures to curb executive pay, Helga Breen, a partner in Lawrence Graham's employment practice, commented:
"Some of the proposals – such as clawing back pay and bonuses and limiting rewards for failure – have been around for some time and have not had any marked impact on pay levels.
"Perhaps the most novel and potentially effective proposal is to give shareholders a binding vote on board room pay. Currently the remuneration committees of listed companies (mostly made up by directors who have a personal interest in the outcome) decide on pay awards and shareholders get to vote on the whole package. Even if they vote against the remuneration proposals, the company can choose to ignore their recommendations.
"It is not clear how shareholders will be given an effective veto on pay but to work fairly and consistently it would have to be by majority of those entitled to attend and vote at shareholders' meetings and not just those who regularly attend the AGM (usually representatives of institutional investors and the odd small shareholder). All private shareholders would need to be given both the opportunity and the means to vote electronically or by post and there would need to be protection against "carpet baggers" who buy shares in order to vote for their own agendas.
"Currently the restrictions on executive pay are advisory rather than mandatory. It remains to be seen whether the coalition will deliver the far-reaching regulatory reforms it has promised."