We were expecting Vince Cable’s announcement on executive pay in a speech tomorrow afternoon, but not as soon as this. If you listen to shadow secretary Chuka Umunna, Labour have ‘forced’ him to come to the Commons to make the announcement first - the Speaker granted Umunna an urgent question, meaning that Cable had to make is announcement in a statement to the Commons first.
Cable told the House that he “welcomed this opportunity to set out the government’s position on executive pay”, and that “we can’t accept top pay rising at five times the rate of ordinary workers as it did last year”.
The government’s stance on executive pay is in four parts, as follows:
1. Greater transparency
This includes measures to force companies to provide better information for shareholders. Cable announced that secondary legislation will be introduced to require companies to publish “more informative” remuneration reports. They will also be required to state how employees’ views have been taken into account – something that Cable called “a potentially powerful mechanism for employees” that is currently underused. Companies will also have to produce a ‘dispersal report’ that will put executive pay in the context of other methods of remuneration, like bonuses and dividends.
2. More shareholder powers
Cable called for binding votes on future pay policy. As part of their transparency efforts, companies will have to include a statement on how they have taken shareholders into account and details of previous votes. The business secretary also said that he would consider future sanctions where significant shareholder dissent is evident.
3. More diverse boards and remuneration committees
According to Cable, getting a more diverse range of people at the top of companies is “crucial to challenging the status quo”. He said he would “like to see at least two people who haven’t been directors before” on boards, although it didn’t seem as if this was to become a requirement.
4. Best practice
As part of demonstrating best practice, Cable put the onus firmly on companies to lead the way. In his opening remarks, he said that it wasn’t for government to “micro-manage” companies, and instead called on shareholders and companies to be active in showing the way.