Controlling executive pay has proved to be a populist issue that is a relatively easy political “win” with voters. Which is why developments in one country need to be carefully monitored for the likelihood that they may be adopted by other countries, including Australia.

In a prior article we alerted readers to the announcement by the UK Secretary of State for Business of a package of measures to address “failings in the corporate governance framework for executive remuneration” (see HERE). This included: 



• Greater transparency in directors’ remuneration reports
• Empowering shareholders and promoting shareholder engagement through enhanced voting rights 
• Increasing the diversity of boards and remuneration committees 
 
• Encouraging employees to be more engaged by exercising their right to Information and Consultation Arrangements 
 
• Working with investors and business to promote best practice on pay-setting.

Following this, the Secretary of State for Business has published a consultation paper that provides more details on a new model for shareholder voting. The main components of this are:

• An annual binding vote on future remuneration policy 

• Increasing the level of support required on votes on future remuneration policy 
• An annual advisory vote on how remuneration policy has been implemented in the previous year 

• A binding vote on exit payments greater than one year’s salary. 



The purpose of the consultation is to seek evidence on the impact, costs, benefits and likely behavioural effects of the proposals. 

This consultation is of particular relevance to companies and business organisations, shareholders and institutional investors, employees and employee representative organisations, academics, governance experts, lawyers and other advisors. The consultations paper can be found HERE. Dr Cable’s written Ministerial statement, published on 14 March, can be found HERE.

The “business case” for legislation, a required input prior to drafting and putting forward to parliament any new legislation, makes fascinating reading. The business case could not identify a financial or economic benefit for the legislation. It did recognise there would be costs, which were not quantified. Given that the argument for the new laws are about reducing “agency” costs, the absence of any quantification of these costs is disappointing. In its review, the Australian Productivity Commission could not find any quantifiable evidence to support significant change. The UK government business case can be found HERE,  with a summary opinion from the UK civil service HERE.

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