Lord Mendelsohn – 2016 Parliamentary Question to the Department for Business, Innovation and Skills
The below Parliamentary question was asked by Lord Mendelsohn on 2016-04-25.
To ask Her Majesty’s Government what assessment they have made of the Executive Remuneration Working Group’s conclusions, and whether they have any plans either by statutory means or by Ministerial engagement to ensure greater transparency in relation to executive pay, clearer alignment of shareholder, company and executive interests, more accountability on the part of remuneration committees and greater engagement with and control by shareholders working through company boards.
Baroness Neville-Rolfe
The Government welcomes the interim conclusions of the Executive Remuneration Working Group. They represent a valuable source of ideas for ensuring more effective engagement between investors and directors and ensuring that executive pay policies are tailored to the needs of individual businesses. We also welcome the Working Group’s plans to consult interested stakeholders on practical ways of improving the current approach to executive pay. Departmental officials will be engaging with the roundtables that are being planned.
The Government made significant reforms to the governance of executive pay in 2013. Under these reforms, companies are required to put their pay policies to shareholders at least every three years. These policies have to include information on how each director will be paid and how that is linked to different levels of performance. This is subject to a binding vote. Companies also have to provide shareholders with an Annual Remuneration Report which reports the pay of each director in a single figure and again has to set out clearly how the actual payments relate to performance. Shareholders have an advisory vote on this report, but if they reject the report, the company must submit a revised pay policy to a binding vote at the next AGM.
These reforms give shareholders effective powers to challenge excessive pay and hold boards to account on executive pay policies. There is strong evidence from the current AGM season that shareholders are willing to use these powers, particularly where levels of pay are out of line with performance.
The Government has no current plans for further legislation or regulation, but is looking for firm evidence that companies are liaising effectively with shareholders and adjusting pay policies where there is shareholder dissatisfaction.
