BUSINESS SECRETARY Vince Cable has pledged to curb the culture of excessive pay among the UK’s senior executives in cases where escalating pay at the top does not correlate with company performance.
Over the last decade, pay at the top of the UK’s largest listed companies has spiraled to £4.2m on average for FTSE 100 chief executives from £1m between 1998 and 2010, while salaries for workers have barely kept pace with inflation.
Speaking at the Liberal Democrat’s annual party conference ahead of the release of a discussion paper on executive pay, Cable vowed to address the disconnect between company performance and executive pay, with many directors seeing pay increases which outstripped increases in company value.
“There are concerns about the disconnect between how our largest listed companies perform and the rewards that are on offer. This is not sustainable,” Cable said.
The discussion paper on exec pay, which was released in conjunction with a broader report on corporate governance, proposed that companies provide a clearer statement about how remuneration relates to company performance and that all directors of companies listed on the London Stock Exchange will be required to set out the total value of their salary, pensions, share schemes and bonuses in a way that shareholders can understand.
Cable also suggested diversifying the membership of remuneration committees, such as having employee representation, to “encourage greater challenges” about how executive pay levels are set, while also making the case for a binding vote for shareholders on deciding pay.
“The disconnect between pay and long-term performance suggests that there is something dysfunctional about the market in executive pay or a failure in corporate governance arrangements,” Cable said. “Concern over this is not just coming from government. Investors, business groups and captains of industry have all told us that this is real problem and needs to be addressed.”
Miles Templeman, director general of the Institute of Directors, broadly welcomed Cable’s proposals, but accused the business secretary of politicising the issue.
“It is important that ministers do not politicise a subject that is best approached in a cool, dispassionate way. The business secretary should be using all his keynote speeches to promote the competitiveness of British business, rather than dwelling for political reasons on executive pay,” Templeman said.
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