The Investment Association has addressed Theresa May’s call for binding executive pay votes, suggesting companies should receive support from 75 per cent of shareholders or face a binding vote.
The proposal comes as a last minute amendment to its final report on executive pay, produced by the Executive Remuneration Working Group, which outlines 10 recommendations.
These include more flexibility in the pay package that companies choose to employ, strengthening remuneration committees, improving shareholder engagement, increasing transparency, and addressing the level of executive pay.
It also recommends boards justify the company’s maximum pay level, with considerations regarding pay ratios between chief executives and other employees.
The report notes Theresa May’s appointment as prime minister was announced as it was being finalised.
In a last minute addition to the report, the working group says proposals to introduce binding votes on pay had previously been rejected due to legal concerns and worries the UK would struggle to attract the best talent.
The report says a more nuanced approach would be that a binding vote was triggered if less than 75 per cent of shareholders had approved remuneration the previous year.
Chair of the executive remuneration working group and chief executive of Legal & General Nigel Wilson says: “The recent intervention from our new Prime Minister shows that investors and companies need to work together and address the concerns with executive pay, our industry is clear that it expects UK listed companies to work with us to tackle the lack of trust that has resulted from the UK’s complex and ineffectual pay regimes.”
Wilson says: “We need to restore public confidence in executive pay. Our report shows shareholders, boards and executives agree the current approach is not working, and want constructive collaboration to get it right.”
Andrew Ninian, director of corporate governance and engagement at the Investment Association, says: ”The recent intervention from our new Prime Minister shows that investors and companies need to work together and address the concerns with executive pay, our industry is clear that it expects UK listed companies to work with us to tackle the lack of trust that has resulted from the UK’s complex and ineffectual pay regimes.”
The IA will look to amend its Principles of Remuneration off the back of the report and the Financial Reporting Council says it will consider the recommendation that remuneration committee chairs should have at least a year’s experience.
As well as Wilson, the working group for executive remuneration includes remuneration chair for Aggreko and Spectris Russell King, IA chair Helena Morrissey, chair of the strategic advisory board for Lancashire and London Pensions Partnership Edmund Truell and chair of J Sainsbury and Hammerson David Tyler.
The group said they would be happy to contribute to the debate sparked by May, based on the views from a range of stakeholders they have heard from over the past year while compiling the report.