guardian.co.uk,
Toby Helm, political editor and Richard Wachman, city editor, Saturday 7
January 2012
 |
| Business secretary Vince Cable is backing the move to give shareholders an effective veto over pay deals. Photograph: Martin Argles for the Guardian |
Shareholders
are set to win a legal right to block sky-high pay awards to company executives
under radical plans for an assault on "fat cat" earnings being drawn
up by the government.
Senior
ministers, including the business secretary, Vince Cable, are backing the move,
which would give shareholders an effective veto over pay deals they regard as
unacceptable. Downing Street suggested that David Cameron was also sympathetic.
A spokesman said the prime minister was keen to "give more power to
shareholders" in the battle to rein in undeservedly high awards.
The move by
ministers, which would require legislation, came to light as the main parties
scrambled to occupy the high ground over executive pay, ahead of the
politically charged bank bonus season. It reflects a growing consensus at
Westminster that executive pay is out of control and has to be tackled,
particularly at a time when many people are losing their jobs and those on
modest earning are having their pay frozen.
In the past
financial year, the directors of FTSE 100 companies have seen a 49% increase in
total earnings, taking average pay to £2.7m. Although bonuses will probably be
down on last year, the hefty sums awarded will further highlight the growing
chasm between rich and poor and fuel complaints that the government is too soft
on the City.
Labour,
whose leader, Ed Miliband, has called for a "fairer and better
capitalism", last night challenged the government to back all the
recommendations of the independent High Pay Commission, in order to increase
transparency and accountability in the boardroom and the City. Currently
shareholders have a right to vote on pay awards, but the vote is
"advisory" and often takes place only after the decisions have been
made on executive pay. Under the plans now being drawn up by cabinet ministers,
the vote would, for the first time, have legal force, meaning that executives
will be subject to the democratic will of shareholders over pay.
A
government source said that a final decision on plans to tackle high pay was
still some weeks off, but added: "This is the direction we are moving in.
It is a big step."
Anger among
shareholders and the public at soaring executive pay has been growing in recent
years. Shareholder rebellions have become increasingly common. Advertising
giant WPP's management received a stinging rebuke from investors last year,
with 42% of shareholders voting against the remuneration report.
Shareholder
activists objected to the fact that Mark Read, the head of WPP Digital,
received a pay rise of 31% to £425,000 in January. In one of the most celebrated
rebellions, shareholders of GlaxoSmithKline voted overwhelmingly in 2003 to
withhold their support from a motion that would have secured £22m in pay and
benefits for former chief executive Jean-Pierre Garnier. The Garnier scheme was
eventually amended.
Other
reforms being considered by ministers include ending the "cosy
cartel" that allows top executives to set each other's pay, by bringing
outsiders on to remuneration committees, and introducing rules to force
executives to take more of their pay in shares that cannot be cashed in for at
least five years.
The High
Pay Commission said executive remuneration was out of control. It cited the pay
of the head of Barclays, which went up by nearly 5,000% in 30 years, a period
in which average wages had only risen threefold. It made 12 recommendations,
including:
• Greater
transparency in the calculation of executive pay to end the "closed
shop" on pay decisions.
• Putting
employees and other "outsiders" on remuneration committees.
•
Publishing the top 10 executive pay packages outside the boardroom in order to
illustrate the sums earned by senior traders at investment banks.
• Forcing
companies to publish a pay ratio between the highest paid executive and the
company median.
• Requiring
companies to publish a single total pay figure for boardroom members, including
pension benefits.
Will
Hutton, Observer columnist and author of an independent review of fair pay
delivered to the government last March, called for companies and the public
sector to publish annually the five-year trend of the ratio of top pay to
median pay and justify upward movement. "Citizens, workers and
shareholders would have the ammunition to challenge undeserved top pay,"
he said.
Deborah
Hargreaves, who chairs the High Pay Commission and is a former business editor
of the Guardian, said last night: "We would urge the government to be bold
in their reforms and not be put off by the strong possibility of a backlash
from the business lobby. The public are right behind the campaign for executive
pay restraint in this new era of austerity."
Chuka
Umunna, the shadow business secretary, said: "We have set three tests for
the government to meet, based on the principles of transparency, accountability
and fairness. Anything less than the full implementation of these measures by
the prime minister will fall short of what is required to empower those who
ultimately own our businesses and secure the trust of the British people in the
system."
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