UK: Government announces executive pay proposals

A day earlier than expected, and in response to an Urgent Question in Parliament, the Secretary of State for Business, Innovation and Skills today set out the Government's proposals regarding executive pay. Speaking in the House of Commons, the Secretary of State outlined measures concerning disclosure and shareholder voting and explained his aspirations regarding board diversity.

Changes in the structure of remuneration reports will be introduced through secondary legislation, separating the report into two sections, one on future policy and another on the implementation of policy in the previous year. A binding vote - on which further consultation will take place - will be introduced with regard to future policy.  Shareholder approval will also be required where a director's notice period is greater than a year, which will bring the legal framework in line with the UK's Corporate Governance Code which provides that notice or contract periods should be set at one year or less (Provision D.1.5).

It appears that the advisory vote will remain in respect of that part of the remuneration report concerning policy implementation but further consultation will take place on the consequences of a vote against and the threshold required for shareholder approval. In this section of the report companies will be required to provide a single figure for each director's pay and an explanation of how rewards relate to the company's performance.

With regard to board diversity, no new proposals were offered but the Secretary of State said that he wanted to see boards contain at least two people with no previous board level experience. He also said that he supported greater worker participation but that there were too many problems associated with a mandatory approach to worker representation on boards. Greater transparency regarding the role of remuneration consultants was promised and the Secretary of State also said that the Financial Reporting Council would be asked to amend the UK Corporate Governance Code to provide specific provisions regarding clawbacks.

A copy of the Secretary of State's statement will be published in Hansard - see here - and further information will be published soon on the BIS website. The proposals follow the publication in 2011 of a discussion paper, a summary of the responses to which were published today: see here (pdf).