You are hereThe Telegraph: Executive pay to be linked to rank-and-file salaries

The Telegraph: Executive pay to be linked to rank-and-file salaries

Chief executives’ pay awards should be set partly according to how much they pay their rank-and-file staff under new government rules proposed by Vince Cable yesterday.

-By James Kirkup

January 23, 2012- Vince Cable, the Business Secretary, said that shareholders would get new powers to enforce executives’ pay deals, and that they would be told to take account of “pay differentials” between the best-paid and ordinary workers.

Independent analysts said the changes would leave Britain with the toughest rules on executive pay in the world.

Conservative MPs described Mr Cable’s statement as “claptrap” that would harm the economy. Labour said the plans did not go far enough because workers would not get seats on company remuneration committees.

Mr Cable announced a formal consultation on giving shareholders a legally binding vote on executive pay in public companies’ remuneration committees. He also proposed a minimum threshold of 75 per cent support for a pay vote to be successful. That requirement would have blocked recent pay deals at major companies, including National Grid, Xstrata and WPP.

The announcement follows calls by all the main party leaders for British capitalism to be reformed to reflect public concerns about corporate influence and wealth inequality.

Other changes proposed include “clawback” rules for bonuses, forcing bosses to pay back money if a company’s long-term performance declines. Other rules would push companies to widen the range of people sitting on their pay committees, to include more outside experts.

New transparency requirements would also mean that companies would publish a single figure for the total pay, bonuses and other benefits for each director, and an explanation of how that pay related to company performance.

Mr Cable said: “Remuneration committees will be expected to explain why they have used specific benchmarks and how they have taken employee earnings — including pay differentials — into account in setting pay,” he said. He stopped short of demanding companies publish a “pay ratio” between top and bottom earners, saying such ratios were not always useful or accurate.

Sean O’Hare of PricewaterhouseCoopers, the accountancy firm, said Mr Cable’s changes would create the toughest pay regime of any advanced economy.

“Nowhere else in the world will executives see their pay subject to such rigorous checks and scrutiny,” he said.



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