Vince Cable's New Executive Pay Rules Branded a 'Climbdown'

The changes announced on Tuesday were immediately described as a climbdown by Labour for failing to live up to previous government promises made in the wake of the so-called "shareholder spring" revolt against excessive pay.

The moves come amid growing shareholder activism over executive pay, as shown by last week's rejection of WPP's remuneration report, which included a £6.8m pay deal for chief executive Sir Martin Sorrell.

Currently, shareholder votes are advisory, which means companies can ignore them.

Cable is said to have watered down his plans for the binding vote on pay, by requiring an investor poll every three years rather than annually, unless a company makes a material change to a director's deal.

Cable told the Commons: "At a time when the global economy remains fragile, it is neither sustainable nor justifiable to see directors' pay rising at 10% a year while the performance of listed companies lags behind and many employees are having their pay cut or frozen."

"For the first time there will be a real, lasting and binding vote on a company's pay policy including their exit payments," he said.

Cable said binding votes on pay would require the support of a majority of shareholders. If a company chooses to leave its remuneration policy unchanged, a vote would be compulsory every three years, he said.

Once a policy is approved, companies would not be allowed to make payments outside its scope, he added.

Companies will also be required to explain their policy on payoffs to shareholders, which will also be subject to a binding vote. When a director leaves, the company will be told to publish all payments.

All firms will have to report a single figure for the total pay directors receive every year and this will cover all rewards received, including bonuses and long-term incentives. They will also have to report details of whether they met performance measures and a comparison between company performance and chief executives' pay.

The plans were attacked in the Commons on Tuesday as a climbdown by Cable in the face of demands by the business lobby. The department's consultation on shareholder votes, which had been issued in March 2012, specified that the government's proposal was for "an annual binding vote on future remuneration policy".

This claim was then repeated by Cable in a statement to the Commons later that month.

Chuka Umunna, the shadow business secretary, said that companies would find ways around tri-annual votes with broad and ill-defined pay policies.

"At a time when shareholders are becoming more assertive and engaged, the government is failing to do all it can to empower them to hold boards to account and act as a check against excess and rewards for failure. Now is not the time to be rowing back from reform, and Labour has called for ministers to go further.

"This U-turn on what we were led to believe was a flagship policy further undermines the credibility of Vince Cable and the emasculated business department, and adds to the pervading sense of a prime minister and chancellor out of touch with investor and mainstream opinion," he said.

Labour has called for employee representatives on remuneration committees and for firms to publish the ratio of the average pay of a worker to that of the highest paid executive.

This article was written by Rajeev Syal, for guardian.co.uk on Wednesday 20th June 2012 13.48 Europe/London

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