'Act responsibly' plea over pay

The Government is to urge companies to show they can act responsibly on executive pay or face stricter regulatory measures.

Vince Cable has warned companies to "act responsibly" over executive pay.
Vince Cable has warned companies to "act responsibly" over executive pay.

Business Secretary Vince Cable will tell a meeting tonight that improvements on linking pay with performance were "far from universal".

Addressing remuneration committee chairmen responsible for setting pay, he will say that between 1998 and 2010, average pay for chief executives rose by 13% each year, despite no overall increase in the FTSE 100 index over the same period.

He will say: "There is evidence that some remuneration committees have set about restoring a proper link between pay and performance in light of the Government's reforms, with greater transparency and better engagement between companies and shareholders. I am proud of what this Government has already achieved on this thorny issue.

"But I have also heard some concerns that the improvements are far from universal, with some committees said to be observing the letter of the law but ignoring the spirit.

"If companies and investors are unable or unwilling to act responsibly, the pressure for stronger measures will be hard to ignore. Under such circumstances, I would consider options including stricter regulatory oversight of pay reports and policies, a requirement on shareholders to disclose how they have voted on pay, or a requirement to consult employees on pay.

"This is the time for companies and investors to show they can act responsibly. I will therefore be writing to remuneration committee chairs to ask them to fully observe the spirit of the Government's reforms currently in force.

"After this voting season is over I will be taking stock with them to ensure that our reforms on track to restore the link between pay and performance."

Under reforms which came into force last year, companies are required to be clearer about directors' pay and how it relates to performance.

Dr Roger Barker, director of corporate governance at the Institute of Directors, said: "The economy may be on the mend but trust in business remains low. In this environment, remuneration committees must wake up to public concerns around directors' pay.

"The IoD has long urged investors - particularly institutional investors - to take a more active ownership role in the oversight of their companies.

"As Dr Cable rightly notes, this should be a matter for shareholders. If they fail in this responsibility they shouldn't be surprised when government steps in. The best way to avoid such an undesirable situation is for shareholders to exercise the powers available to them then, to ensure the long-term success of the company."