EXECUTIVE PAY
Cable launches review of executive pay
Vince Cable, Secretary of State for Business, has launched a review to consider whether there are failures in corporate governance, executive pay and takeovers. He is calling on company directors, shareholders and other investors to contribute their views.
The call for evidence, launched 25 October 2010, aims to investigate issues including:
the problems of short-termism
investor engagement
directors’ remuneration
the economic case for takeovers.
On directors' remuneration it asks:
- What are the main reasons for the increase in directors’ remuneration? Are these appropriate?
- What would be the effect of widening the membership of the remuneration committee on directors’ remuneration?
- Are shareholders effective in holding companies to account over pay? Are there further areas of pay, e.g. golden parachutes, it would be beneficial to subject to shareholder approval?
- What would be the impact of greater transparency of directors’ pay on the:
linkage between pay and meeting corporate objectives
performance criteria for annual bonus schemes
relationship between directors’ pay and employees’ pay?
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Table 1 of the paper summarises the breakdown of FTSE 100 CEO average remuneration and “shows that average total remuneration rose from an average of £1m to £3.7m for the period 1998-2009, almost a four-fold increase. Relative to average FTSE100 employees pay, CEO remuneration has increased dramatically since 1998 and has remained at a multiple of over 100 times average employee earnings since 2002”.
A final word
“The UK has led the world in developing high standards of corporate governance. The first stewardship rules for investors, the first corporate governance framework for companies and the most comprehensive takeover code.
"Now is the time to look to the future and take a wider view on how these can work together. Well functioning capital markets are vital to productivity, growth and the future prosperity of the UK.
"We need to ask ourselves what are the factors influencing short-term decisions, the reasons for the growth of directors’ pay and why economically damaging takeovers still take place? I recognise that the best solutions will come from businesses and that regulation is not the only option. That is why today I am calling on all companies and individuals to put forward their ideas.” - Vince Cable, Business Secretary.
--> Vince Cable first announced the review at the Liberal Democrat’s conference in Liverpool in September: www.e-reward.co.uk/news.asp?story=1475.
Want to know more?
Title: A Long-Term Focus for Corporate Britain, Department for Business Innovation & Skills, October 2010.
This consultation will run for 12 weeks and closes on Friday 14 January 2011. Company directors, shareholders and other investors are invited to contribute. The consultation document can be found on the BIS web site here.