Vince Cable’s efforts to moderate executive pay under attack

Opposition to the Business Secretary's plans is misguided - the interests of business and the interests of executives are not always the same thing.

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Today’s business press contains worrying signs that Vince Cable’s efforts to rein in executive pay are under attack.

The first is a story in the Financial Times (£), reporting that the Business Secretary is likely to back down on his proposal that company pay policies should be backed by a ‘supermajority’ of up to 75% of shareholders.

Vince-CableThe only good argument against a 75% threshold appears to be the potential for a small group of investors to wield undue influence. However, it is possible to draft the legislation in a way that takes account of this – by requiring, for example, that those voting against remuneration reports represent a minimum number of shareholders, or a minimum proportion of the total number of shareholders. These are already requirements for investors wishing to propose a resolution at an AGM.

By contrast, there are several good arguments for the proposal. The recent high-profile rebellion at CitiGroup, where 55% of investors failed to back the company’s remuneration report, made the news because it was unusual. As the High Pay Commission’s research found, ‘defeat over remuneration is rare – even at the height of the financial crisis only five
companies lost the vote on their remuneration report
‘.

Most investors are extremely passive in their voting behaviour, which means that most overpaid execs will be able to rest easily, knowing that a majority of investors rebelling against their proposal is very unlikely.

The second worrying story is the widely reported view of the CBI that greater shareholder powers would lead to investors ‘micro-managing‘ companies. I’d like to reassure the CBI that they needn’t fret about that: institutional investors typically have holdings in thousands of companies, and so do not have the time to micro-manage anyone.

 


See also:

It isn’t ‘anti-business’ to oppose high pay for mediocrity 24 Feb 2012

Rewards for failure continue at the top of industry 23 Feb 2012

All in it together? RBS fat cat ‘in line for £7m payout’. Seven. Million 27 Jan 2012

Cable fails to provide a stick or carrot in the fight against obscene pay 24 Jan 2012

Three things Cameron should do if he’s serious about high pay 9 Jan 2012


 

The CBI should also consider that investors should, perhaps, be somewhat more assertive. Over the last few decades, executive pay has risen out of all proportion with either company performance or employee pay, which leads to perversely motivated executives and undermotivation in the wider workforce. The CBI says that the IDS research which showed a 49% year-on-year rise in top pay has been ‘misread’, but numerous other studies point in a similar direction.

The CBI says it represents British business. Perhaps it is time to remember that the interests of British businesses, and the interests of their executives, are not always the same thing.

 


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10 Responses to “Vince Cable’s efforts to moderate executive pay under attack”

  1. Pink Humanist

    Vince Cable's efforts to moderate executive pay under attack http://t.co/WTygDE34 by Duncan Exley of @One_Society

  2. Juli

    RT @leftfootfwd: Vince Cable's efforts to moderate executive pay under attack http://t.co/3OFS9Kys

  3. Prateek Buch

    "interests of British businesses, & [those] of their executives, not always same thing" MT @leftfootfwd: http://t.co/oDY7X5uR @One_Society

  4. Shifting Grounds

    Vince Cable's efforts to moderate executive pay under attack http://t.co/JCLLcPSM

  5. Pulp Ark

    Vince Cable’s efforts to moderate executive pay… http://t.co/RV1B7G4y #SustainableEconomy #1percent #bonuses #Business #muslim #tcot #sioa

  6. leftlinks

    Left Foot Forward – Vince Cable’s efforts to moderate executive pay under attack http://t.co/3drOejun

  7. One Society

    Vince Cable's efforts to moderate executive pay under attack http://t.co/WTygDE34 by Duncan Exley of @One_Society

  8. Blarg1987

    And well done to the Barclays shareholders who voted against executive pay today, I hope they will also vote with their investment and pull out.

    This may be the start of a quiet revoloution where shareholders pull out of companies where executive pay is extreme, this will lead to a decreased share price and increased demand on shareholders to have executive pay reigned in 🙂

  9. BevR

    RT @leftfootfwd: Vince Cable's efforts to moderate executive pay under attack http://t.co/yEzO4uWF

  10. Your say on high pay: The campaign against excessive executive pay | Left Foot Forward

    […] a binding simple majority vote as an antidote to excessive pay (as discussed by Duncan Exley on Left Foot Forward, this is in contrast to previous plans to require special majority […]

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