Shareholders to get say on directors' pay

In a bid to strengthen the link between boardroom pay and a company’s performance, the UK government has unveiled proposals to give shareholders the right to block ‘fat-cat’ pay rises.

Trade and Industry Secretary Patricia Hewitt announced on Friday that shareholders are to be given the right to an annual vote on directors' pay.

Ms Hewitt said new legislation would be introduced to ensure greater transparency, improve accountability, and strengthen links between performance and pay:

She said: "Our companies have to be able to attract and retain the best executives in the world and we support top-class pay for top performances.

"But all too often directors are lavishly rewarded for lack-lustre or even poor performances. We share the view of many shareholders that this is simply unacceptable and goes against the interests of the company, its shareholders, and the UK as a whole.

"That is why I am taking action to strengthen the corporate governance framework for boardroom pay. Today's measures will require quoted companies to hold annual shareholder votes on directors' pay and further build on the proposals outlined earlier this year aimed at improving accountability and transparency of directors' remuneration."

Under new legislation the proposals would mean that quoted companies would be required to publish a report on directors' remuneration as part of the company's annual report, disclose individual directors' remuneration packages, and put an annual resolution to shareholders on the remuneration report.

The Institute of Directors, which helped the Government draw up the proposals during the consultation stage has welcomed the announcement as a positive move that would help shareholders to exercise their influence constructively.

The Government will introduce secondary legislation to implement these new requirements in the coming Parliamentary session.

The DTI is to publish a consultation document before Christmas inviting comments on the draft regulations. (SP)