Shareholders need a binding vote on executive pay

The CBI is screaming blue murder, but Vince Cable is right: shareholders need a binding vote on pay. The belief that mere advisory votes could give owners real influence over boardroom rewards now appears quaint. But that was the hope when the system was introduced in 2003 and shareholder groups issued seemingly robust statements about holding boards to account. In practice, all that happened was pay schemes became more complex and levels of pay rose much faster than share prices and dividends. By the time the advisory vote arrived, the sums had already left the building. In the very few cases where a company lost an advisory vote, boards promised to do better next time but explained they were powerless to rewrite contracts, even in cases of executive failure. Cable's proposals are a big improvement. Shareholders would get a binding, forward looking vote on remuneration policy and the threshold for approval could be set as high as 75%; there would still be an advisory vote on the implementation of the policy; and there would also be a binding vote on any payoffs above a year's basic salary. The CBI's big beef is with that 75% hurdle. In a few cases, it's true that a single large shareholder (think Sir Stelios as easyJet) could hold a trump card. But, come on, well-drafted legislation could deal with that wrinkle. It's not as if requirement for a 75% majority is entirely novel. It already applies to all "special" resolutions that cover, for example, changes to the articles of association. Common sense says the relationship between owners and their appointed agents, as expressed through pay and incentives, also fits the description "special".