The Government was criticised yesterday by corporate governance activists and trade unions for backing down on new laws to curb pay-offs for directors of failing companies.
Patricia Hewitt, the Secretary of State for Trade and Industry, confirmed she did not intend to introduce further legislation to tackle boardroom "payments for failure" but instead would monitor how well companies and shareholders were dealing with the issue.
The corporate governance watchdog PIRC described Ms Hewitt's announcement as "totally inadequate". Alan MacDougall, the organisation's managing director, said: "The Government's response condemns shareowners and employees to a continuing spectacle of undeserved personal remuneration awards with no effective restraint."
Brendan Barber, the general secretary of the TUC, said shareholders needed more powers to curb rewards for failure. "British boardrooms have an impressive record for evading legal restrictions on executive excess by promising to get their own house in order but still offering lavish pay deals," he added. "Shareholders are beginning to bite but they need stronger teeth."
However, the CBI said the Government had been right not to regulate. Digby Jones, the director general of the employers' organisation, said: "It would be totally impractical for the law courts to pass judgment on whether a chief executive has failed."
Institutional investors also backed the Government's stance. The Association of British Insurers, which represents big pension funds, described the Government's response as "pragmatic and sensible".
The Government has already introduced legislation requiring companies to put their remuneration reports to an annual vote of shareholders and this has led to some notable revolts, including the rebellion which forced the drugs company GlaxoSmithKline to cut the severance period of its chief executive Jean-Pierre Garnier from two years to one.
Ms Hewitt told the Commons that further legislation in this area was not necessary "at this stage." However, she served notice that she was ready to act if it became apparent that shareholder activism was failing to curb payments for failure.Reuse content