The Government is proposing to give investors in UK-listed companies binding annual votes on executive pay and exit payments with new laws set to strengthen the link between wages and performance.
Seeking to ease public anger over big rewards for corporate leaders, the Business Secretary, Vince Cable, yesterday said he wanted "to prevent rewards for mediocrity or failure".
Executives' pay shot up by nearly 50 per cent last year, despite sluggish economic growth and only moderate expansion by leading companies.
"My objective is to enable shareholders to promote a stronger, clearer link between pay and performance in order to prevent rewards for mediocrity or failure," said Mr Cable, right, as he launched a public consultation on the plans. Final proposals are due this summer, with legislation later this year.
If the proposals become law, shareholders would get new powers to take part in a binding annual vote on remuneration policy. They would also be able to vote on exit payments worth more than a year's salary.
The Government also wants to raise the level of support needed to carry votes on future pay policy, from 50 per cent to up to 75 per cent, a move opposed by lobby groups such as the Institute of Directors.
Earlier, Mr Cable welcomed a report commissioned by the last government on how to improve the state of corporate ownership in Britain and said he would give it serious consideration.
The Ownership Commission, an independent body chaired by Will Hutton, recommended that companies seeking a UK listing should have to make sure that at least half of their shares are available to be freely traded.
It also said Britain should use tax incentives to build up a German-style "Mittelstand" of middle-sized companies. The report said the plc (public limited company) model of ownership encouraged short-termism and left businesses exposed to hostile takeovers.
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