27 Apr 2012 11:42am

CBI warns government over shareholder voting rights

The CBI has hit out against the widespread use of “misleading” information in the debate about executive pay

It has warned the government that it is in danger of blurring shareholder and management responsibilities when it comes to setting levels of remuneration packages.

Responding to the Department of Business, Innovation and Skills’ consultation on shareholder voting rights, the CBI stressed that it has always made it clear that executive remuneration should always be linked to performance.

“This link needs to be made more transparent and in some cases strengthened,” said CBI chief policy director Katja Hall. “That is why we support the publication of a single figure for directors’ pay.

“Only by first getting the facts right can we have a meaningful debate and enable shareholders to hold boards to account. For instance, last year, pay for chief executives rose by an average of 10%, not the 49% which has been widely reported.”

The CBI describes recent claims that there is no link between executive pay and company performance as “misleading” and points out that the median growth in profit for FTSE 100 companies since 2003 has been more than twice the median growth rate of chief executive remuneration over the same period.

The business organisation says that it is keen to support measures that strengthen the role of remuneration committees and underpin their independence, but it absolutely refutes “the myth of a ‘cosy club’ of business leaders setting pay for each other”.

No two FTSE 100 executive directors sit on each other’s remuneration committees, it adds.

Hall says that the corporate governance code is the best place to deal with improvements in transparency over executive pay, adding, “The government’s proposals unhelpfully confuse the roles of shareholders and management.

“If these responsibilities are blurred, then the result would be shareholders micromanaging companies, which would lead to slower and less effective decision making.”

As far as the specific proposals are concerned, the CBI believes that:
• binding shareholder votes should apply to the principles of pay strategy, not individual remuneration packages
• higher voting thresholds would result in pay policies going against the wishes of the majority of shareholders and apply a higher standard of control to pay than on the buying and selling of the company itself
• binding votes on exit payments over 12 months are impractical because they would require boards to call an egm or wait until the agm to remove underperforming directors

Management, it says, must be able to act quickly and decisively over underperforming directors which would be impossible if shareholders had to be consulted.

“A more workable way to increase scrutiny would be to make exit payments subject to a backward looking advisory vote,” Hall added.


Julia Irvine