Hewitt rules out new law on directors' pay

The government ruled out introducing legal curbs on directors' pay yesterday after publishing research showing better disclosure of earnings had delivered a "substantial change in behaviour".

The government ruled out introducing legal curbs on directors' pay yesterday after publishing research showing better disclosure of earnings had delivered a "substantial change in behaviour".

Ministers said they had decided against using the forthcoming Company Law Reform Bill to bring in new rules on executive pay.

Patricia Hewitt, the Secretary of State for Trade and Industry, said rules introduced in 2002 giving shareholders a vote on pay deals had led to dialogue between companies and shareholders and opened directors' remuneration packages to closer scrutiny.

"We are now seeing higher levels of compliance by top British companies, improved disclosure of directors' pay and better engagement with shareholders," she said.

"While we are not complacent, we believe that a combined approach that develops best practice, underpinned by legislation, is the best way to tackle this issue."

She published an independent report by the accountants Deloitte and Touche, which she said underlined the effectiveness of the Government's measures. The report found a "significant" increase in compliance with the new regulation; an almost complete reduction in directors' notice periods to a year or less; all FTSE 350 companies put their remuneration reports to a separate shareholder vote; and a closer link between executive pay and performance.

The decision was welcomed by business and investors' organisations but criticised by trade unions.

Tony Woodley, the general secretary of the Transport and General Workers Union, said: "The fat cats have just been given another life. A Labour government should not be afraid to act."

He said directors' pay had climbed 12.8 per cent last year - three times faster than average earnings - taking the average pay packet for a chief executive to £1.7m.