Investors should get bigger say over executive pay, IoD says
Investors should be given a bigger say in executive pay in the UK's biggest companies under moves to rebuild trust in business, directors are urging.
The Institute of Directors said that if 30% of investors oppose a remuneration report at an annual meeting, the company should have another look at its pay policy and allow shareholders a fresh vote.
The IoD noted that despite some high profile rebellions in recent months, executive pay is usually waved through at an AGM.
The next government should take action to force stock market listed firms to give shareholders a second vote if a significant minority rejected a pay report, said the IoD.
Oliver Parry, head of corporate governance at the IoD, said: "UK company boards have been put under unprecedented scrutiny in recent months, with the Government and the House of Commons business committee suggesting reforms to executive pay and the governance of private companies.
"Business has been facing a crisis of public confidence since the financial crisis, and the political impetus to intervene will not disappear, whoever is elected.
"UK corporate governance is highly regarded across the world, but there is still a pressing need to rebuild public trust in big business to work in the long-term interests of investors and employees, rather than the short-term interests of managers.
"Now is the time for sensible reforms which increase transparency and draw more engagement from shareholders."
Education group Pearson was the latest firm to be dealt a bloody nose, with shareholders venting their anger over a 20% pay bump for chief executive John Fallon.
More than two thirds of investors opposed the company's remuneration report on Friday after the company shelled out an extra £343,000 for Mr Fallon's annual incentive plan despite posting the biggest loss in its history.
The pay protest follows rebellions at Crest Nicholson, AstraZeneca, Thomas Cook and Ladbrokes Coral earlier this year.
The Business, Energy and Industrial Strategy (BEIS) select committee is calling for a crackdown on excessive remuneration as part of a widespread review of corporate governance.
A report by the committee published last month said executive pay had been "ratcheted up" to the point where there is no credible link between earnings and performance.
It said faith in corporate governance had been shaken in the wake of scandals such as Sir Philip Green and the BHS pension fund, and has called for businesses to simplify the structure of executive pay and put an end to long-term incentive plans.
Their recommendations include workers on remuneration committees and for the chairs of these committees to be expected to resign if shareholders reject their proposed pay policy.
The committee has also backed publishing pay ratios annually.