Votes on boardroom pay could become legally binding in the near future, as the government mulls feedback from corporate governance consultation
Shareholders could be given the right to block bumper pay packets for companies' executive teams in the much-anticipated upcoming white paper on corporate governance.
The Department for Business, Energy and Industrial Strategy has run a consultation on corporate governance, including executive pay and whether pay votes should be binding, which closed for feedback last month.
At present, votes on pay are advisory only, meaning firms can dish out hefty awards even if the majority of investors disapprove. However, since 2014, votes on pay policies – essentially the methodology for how execs will be paid over the next three years – are binding, meaning remuneration committees could be sent back to the drawing board if their plans are rejected by shareholders.
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A number of consultation submissions called for investors to be handed more power on top dog pay. Asset manager Fidelity International urged the government to consider increasing binding votes on boardroom pay policy from once every three years to once every year, while a group led by the Investment Association urged ministers to impose an automatic binding vote for companies whose pay deals were voted against by more than a quarter of shareholders the year before.
Now, the Sunday Times has reported the white paper from the consultation could force companies to reassess pay packets and put them to a second shareholder vote if they fail to garner favour from investors.
However, Roger Lawson, deputy chair of shareholder interest group Sharesoc, warned such measures would not go far enough, telling CityAM: "It will help. It won't solve the problem altogether."
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Lawson's own group put forward proposals for shareholder committees, to counteract director-dominated remuneration committees, in its submission to the consultation.
The launch of the white paper could well coincide with many firms putting their newest pay policies to shareholders for the first time since votes on these became binding. Experts have previously told CityAM they expect firms to be facing off with investors more this year, while pay plans have been called into question at FTSE 100 BAE Systems and Glaxosmithkline, as well as newly-merged broker's firm TP Icap.
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Meanwhile, tobacco behemoth Imperial Brands has already backed down over a £3m pay rise for chief executive Alison Cooper over fears it would fail to pass muster with investors.
The Department for Business, Energy and Industrial Strategy declined to comment on the contents of the white paper, but a government spokesperson said it was "committed to creating an economy that works for everyone, and that's why we have consulted on options to strengthen corporate governance. We are considering the responses received and will respond in due course."