The Department for Business, Innovation & Skills (BIS) has launched a consultation on measures to give shareholders of UK-incorporated quoted companies greater influence over executive pay, through enhanced voting rights.

These proposals are just part of the Government’s attempt to address wider concerns that the link between pay and performance in some of our largest listed companies has been lost.  The consultation document sets out further details on how the Government intends to give shareholders a greater say on executive pay.  Its proposals include giving them:

  • an annual binding vote on a company’s future remuneration policy.  This means that each year companies will have to set out a proposed pay policy for the year ahead and put it to an annual shareholder vote.
  • an annual advisory vote on how remuneration policy has been implemented in the previous year.
  • a binding vote on exit payments in excess of one year’s base salary.

From an employment perspective, the proposals may necessitate changes to directors’ service agreements, for example to: (i) ensure that provisions relating to variable remuneration do not conflict with the rights of shareholders to approve remuneration policy on an annual basis; and (ii) make it clear that any exit payment for more than one year’s base salary is subject to shareholder approval.

The consultation exercise will close on 27 April 2012 and the Government anticipates new legislation coming into force in Spring 2013, at the same time as the revised reporting requirements on directors’ pay.