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 that executive pay is not fit for purpose” and that extensive reform is needed to allay “widespread scepticism and [the] loss of public confidence”.”
Baroness Neville-Rolfe
The Government has noted the views set out in the interim report of the Executive Remuneration Working Group.
Government reforms introduced in 2013 provide a significantly more transparent and robust governance framework for executive pay. The reforms give shareholders a binding vote at least every three years on company pay policies and an annual vote on the remuneration report which sets out exactly what directors have been paid. The annual vote is advisory but if the shareholders vote down the report, the company has to bring a revised pay policy to the next Annual General Meeting.
These reforms give shareholders effective powers to challenge excessive executive pay and to hold boards to account on pay policies and it is now for investors and companies to engage constructively to ensure that pay policies are fit for purpose and that they align the interests of executives, shareholders and companies.
Evidence from the current round of Annual General Meetings is that the reforms are having an impact and that shareholders are increasingly willing to use these powers where they are dissatisfied. BP and Smith and Nephew’s shareholders, for example, voted against their companies’ remuneration reports and the shareholders of Weir Group voted against that company’s remuneration policy in a binding vote. There have been significant shareholder votes against the remuneration reports at a number of other companies.
The Government has no current plans for further legislation or regulation, but expects to see companies liaising effectively with shareholders and adjusting pay policies where there is shareholder dissatisfaction.