Government to Increase Shareholder Power

The government intends to crack down on exorbitant remuneration packages, with proposals for increased shareholder power in the boardroom.

The plans, outlined in yesterdays Queen’s Speech would provide shareholders with a greater opportunity to curb - what they might consider as - excessive executive pay with a binding vote. Currently, shareholder votes on executive remuneration packages are not binding.

The proposals come in the wake of recent shareholder activism - dubbed the ‘shareholder spring’ – which has recently seen senior executives at AstraZeneca, UBS, Trinity Mirror and Aviva all face dissatisfied shareholder groups over personal remuneration packages against the backdrop of poor corporate results.

A Department for Business Innovation & Skills (BIS) spokesperson said: ‘We welcome the recent shareholder challenges over executive pay and do not want it to be just a passing fad. That’s why we want to embed these proposals in so this activism will remain for the long term.’

However Jo Iwasaki, ICAEW’s head of corporate governance, was critical of the plan. She said: ‘Binding votes might be useful in some specific circumstances, like when a board persistently fails to take account of shareholders’ views. However, if binding votes are applied in all circumstances, it could damage the relationship between shareholders and the board.

‘ICAEW believes that change in this area should be led by business and shareholders; the good news is that recent developments suggest this is happening.’

John Longworth, director general of the British Chambers of Commerce, added: ‘Businesses must be able to reward good performance. Conversely, there should be no rewards for poor performance. But these responsibilities should be exercised by companies’ non-executive directors and remuneration committees, in the interests of shareholders. Shareholders themselves must also hold boards to account.’