Shareholders of Britain's biggest companies are to be given new powers to control directors' pay.
Stephen Byers, the Secretary of State for Trade and Industry, is to announce that all publicly quoted companies will be required to ask shareholders to vote on the salaries paid to their board members each year.
The move comes amid increasing anger among ministers that companies such as Barclays bank are awarding directors huge pay packages while closing branches and planning to impose charges for the use of cash machines.
The issue was highlighted starkly yesterday when shareholders at Barclays' annual general meeting attacked the £1.3m pay awarded to its new chief executive, Matt Barrett. Despite their complaints there was no mechanism for shareholders to vote separately on the renumeration package.
Mr Byers' long-awaited announcement on directors' pay, to be made in the next few weeks, follows extensive consultation with business on the best way to improve the accountability and transparency of British firms.
Under the proposals, the Department of Trade and Industry (DTI) will require that publicly quoted firms ask their shareholders to vote on the board's renumeration report at annual general meetings.
Currently the only way that investors have of expressing their objections to salaries is either by voting against a company's annual report or against individual directors standing for re-election.
Mr Byers is keen to show that the Government takes the issue of corporate accountability seriously, but does not want to over-regulate business in its commercial decisions.
The DTI has decided that the changes will not be achieved through legislation but will instead be written into the code of practice being drawn up by the Financial Services Authority. All companies will be expected to comply with the code when it takes over the role of the Stock Exchange in policing corporate law later this year.
Even tougher moves, to require directors to stand for re-election every year and to allow shareholders to elect the chairman of the renumeration committee, have been rejected.
However, companies will be required to ensure their renumeration reports explain the link between rewards and performance and will have to show clearly how high pay results in long-term objectives. Mr Byers also wants full disclosure of compensation commitments or "golden goodbyes" paid to directors who leave before their contract ends.
"We know that companies want to pay the best rates to attract the best staff, but we want to ensure that there is real accountability for the shareholders," said a senior DTI insider. "High pay at the top has to be linked to performance if we are to improve our international competitiveness."
The National Association of Pension Funds and the Association of British Insurers have backed the proposal for an annual vote, which is understood to have influenced ministers.
The NAPF, which is the leading body representing shareholders' interests, told the DTI that renumeration committee reports should be presented and voted on separately at the agm. It said: "A vote against the board's renumeration report would be a clear signal of shareholder dissatisfaction."
Under the voluntary code, drawn up by a group headed by the former Marks and Spencer chief Sir Richard Greenbury, companies can consult shareholders on pay only if the board agrees. The Greenbury group, and the Hampel committee which succeeded it, concluded making renumeration a standard agenda item would "overstate" the importance of pay.
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