UK investors get binding say-on-pay votes

New rules to increase investors’ voting power came into force in the UK yesterday, designed to tighten the link between pay and performance.

Around 900 UK listed firms must now seek approval for executive pay plans from at least half of their shareholders, as well as publishing a simple figure each year to show how much the C-suite has been paid – rather than the raft of numbers often provided in the past.

Investors also gain an annual advisory vote on actual pay awarded to directors, which must be in line with the remuneration policy approved by shareholders. The rules, implemented by Vince Cable, the UK’s business secretary, further require firms to publish details of any exit payments.

‘Over the last decade the pay of our top executives has quadrupled but it has not always been an indication of how well a particular company has performed,’ says Cable in a press release from the Department for Business, Innovation & Skills (DBIS). ‘At the same time, company reports have become increasingly complicated without giving shareholders the right sort of details they need in order to evaluate performance.

‘Our reforms mean shareholders will no longer be kept in the dark. They now have powerful tools [that will allow] every shareholder – big or small – to speak up and challenge companies over excessive pay.’

In addition to the new shareholder powers, a number of other changes to non-financial reports – aimed at helping investors keep listed firms in check – have come into effect. These include: 

• The introduction of a new ‘strategic report’ in which companies explain their strategy and business model, as well as the main risks, challenges and opportunities facing the firm in the coming year
   
• A statement on the gender ratio at board level, in senior management and in the company as a whole
   
• New disclosures on a company’s greenhouse gas emissions
   
• Information on human rights issues that could affect the business.

The DBIS maintains the new requirements will not bog down company reports, as some other historical requirements have been removed.