Investors have told the business secretary that a mandatory vote is only needed when a company changes its plan plans. He should not have listened
Try as he might, Vince Cable is trying to give the impression that he is not backpedalling on his plan to hand shareholders an annual binding vote on executive pay schemes. The business secretary told MPs late on Monday night: “Current thinking — we are yet to report back to the House formally on the consultation — is that there will be annual votes if pay policy is changed by companies”.
This is not what he had promised during his campaign to crack down on cronyism in the boardroom. The annual binding vote on future pay polices was to be in addition to the current annual vote on pay deals that is only advisory – but hopefully embarrassing enough to force companies to rethink their pay deals.
Cable went on to say that investors have argued that a mandatory vote is only needed when a company changes its plans. He should not have listened. That would be the some of the same investor groups that argued a decade ago that they did not need the advisory vote that Labour handed to them in 2003.
Almost 10 years later, and during what is being dubbed a “shareholders spring”, investors have voted down five remuneration reports – matching the record of 2009. That number could rise to six on Wednesday when shareholders in WPP are expected to vote down a 30% salary rise for chief executive Sir Martin Sorrell – whose basic pay after the rise stands at £1.3m before bonuses.
But a grand total of just six defeats, during a year when the new Manifest/MM&K survey of FTSE 100 pay shows that in 2011 chief executive pay rose on average by 12%, when the pay of their workforce barely moved and the index fell by 5%, is hardly a huge uprising.
Shareholders have not played their role in keeping executive pay in check. But while they are clearly not to blame on their own – remuneration committees should learn to say no to greedy chief executives – Cable has missed his opportunity to put them on the spot if he does indeed decide to step back from the annual mandatory vote.