David Cameron faced a backlash from business leaders last night after he promised to give shareholders new powers to veto lavish payouts to failed executives. The Prime Minister's attack on City excess just ahead of the bonus season and his plans to introduce more checks on undeserved bonuses were derided as flawed and unworkable.
He promised moves within weeks to give extra powers to shareholders - notably a binding vote on top salaries, to curb the practice of authorising "golden parachutes" to departing executives, and to require companies to provide more details of managers' salary packages.
But business chiefs pointed out that, by the time shareholders would get to vote on multi-million-pound bonuses at the company AGM, the money would already have been paid out.
"Binding shareholder votes would simply be shutting the stable door after the horse has bolted," said John Cridland, the Confederation of British Industry's director-general. "Shareholders would only be voting after the problem has happened."
The issue of corporate excess has come to the forefront of the political battleground. Stephen Hester, chief executive of Royal Bank of Scotland, is likely to pick up a multimillion-pound bonus this year, it emerged yesterday.
Downing Street sources meanwhile suggested that the power for shareholders to block exorbitant pay-offs would be applied only to newly appointed executives rather than managers on existing contracts, meaning it could take years for the sanction to bite.
The CBI doubted the wisdom of allowing shareholders to intervene in executive pay decisions. It said it preferred the use of claw-back schemes to recover cash from poorly performing managers - and said executives should be paid realistic salaries in the first place.
The Association of British Insurers warned that a vote to block a director's promised bonus could leave employers facing legal action, while the National Association of Pension Funds argued that extended shareholder voting rights would undermine the authority of company boards.
Mr Cameron told BBC1's The Andrew Marr Show that he knew executives picking up huge cheques even when their firms failed made "people's blood boil". He said: "What I think is wrong is pay going up and up when it is not commensurate with the success companies are having."
The Prime Minister said some managers were worth a £2m salary because they helped the economy to expand and created jobs. But he added: "Excessive growth of payment, unrelated to success, frankly ripping off the shareholder and the customer is crony capitalism and is wrong."
He signalled that Vince Cable, the Business Secretary, would soon set out plans to:
- give shareholders the power to vote on levels of executive pay;
- enable shareholders to block unjustified dismissal packages for departing managers;
- require more transparency on executives' rewards by publishing clear details of pay packages, including salary, share plans, retirement schemes and other perks.
The moves would require legislation, which would be included in the Queen's Speech in the spring.
But Mr Cameron was lukewarm about the prospect of forcing firms to appoint an ordinary member of staff to remuneration committees. He said he was not in favour of gimmicks or tokenism. And he rejected calls for businesses to be required to publish details of the gap between their highest and lowest-paid staff.
Chuka Umunna, the shadow Business Secretary, said the plans "fall far short of what is needed to end rewards for failure".
The TUC's general secretary, Brendan Barber, said: "While binding shareholder votes on remuneration packages are an encouraging start, they will achieve nothing unless accompanied by a full package of measures to reform corporate pay excess."
Research published yesterday by the Institute for Public Policy Research think tank showed that the total remuneration of chief executives in 87 of the FTSE 100 companies rose last year by 33% to an average £5.1m, while their businesses went up in value by only 24%.