Shareholders win right to vote on directors' pay

All too often directors are lavishly rewarded for lacklustre 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.

We have always argued that a binding vote on the policy going forward would be more helpful, because that would enable shareholders to bring about change before any remuneration is actually paid out. We still believe this would be an important element in efforts to establish an appropriate link between remuneration and performance.

We will be scrutinising the proposals for enhanced disclosure to ensure that they do require companies to make all the disclosures needed for shareholders to make the necessary judgements.

The major concern in the determination of directors' pay should not primarily be the curtailment of excesses. Although highly publicised, such abuses are very much the exception. Rather, the key concern should be attracting, focusing, motivating and rewarding the right individuals to run the business effectively and deliver results.

Anything which makes remuneration policy clearer, strengthens accountability and enables shareholders to exercise their influence effectively and constructively, has to be welcomed. Click here

Executives will now need to justify their pay rises. The next step will be to make all shareholders cast their votes so institutional investors cannot opt out of these important policy issues. Companies that include employees on their remuneration committees, as the TUC suggests, are likely to get an easier ride at AGMs.