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Vince Cable is expected to water down plans to strengthen shareholders’ power to curb excessive payouts in a move that will reassure the City.
The business secretary is expected to confirm plans for an overhaul of the way company bosses are remunerated in the coming weeks.
However, he is now inclined to scrap proposals for shareholders to hold a mandatory annual binding vote on executives’ future pay and make it every three years instead, according to people familiar with the situation.
Currently, companies can ignore shareholder votes on pay as they are only advisory, meaning the issue has become one of the most controversial elements of the government’s proposals for restraining the remuneration of top company bosses.
The debate is being played out against a background of increasing shareholder assertiveness at annual meetings. Investors have staged big revolts at groups such as Aviva and Cairn Energy. Next Wednesday, WPP is expected to face a shareholder rebellion over the pay of Sir Martin Sorrell, its chief executive, at its annual meeting.
The Business, Innovation and Skills Department said: “Some respondents thought that allowing companies and shareholders the option of agreeing a three-year remuneration policy would encourage longer-term thinking on pay, with the option of having an annual vote if that’s what companies and shareholders want.”
A senior consultant at a top London financial services firm said: “This does not surprise me. I think the government has realised that its initial plans were too bold. The noises from Vincent Cable and other ministers have been less strident in recent weeks.”
Shareholders have been split over how far the government should go with reforms. Some argue that a binding vote might prompt them to be more cautious about voting against a pay scheme, on the basis that it risked destabilising the management and therefore their investment.
Fidelity Worldwide Investment has proposed a requirement for pay schemes to be supported by a “supermajority” of more than half or three-quarters of shareholders.
However, other investors complained that insisting on a supermajority would play into the hands of single parties holding more than 25 per cent of a company’s shares.
Mr Cable has argued that a binding vote would hand investors a powerful tool to tackle rewards for failure and combat outsized bonuses and incentives.
The Association of British Insurers, which represents close to a fifth of UK shareholders, said its members “supported the introduction of a binding vote on future remuneration policy … over a two- to three-year period”.
A proponent of more flexibility over binding votes, the ABI added that this would “allow companies to demonstrate how remuneration is aligned with company strategy”.
The ABI also opposes plans for a binding vote on exit payments for executives of more than a year’s base salary, although people familiar with the government’s thinking say Mr Cable is set on implementing this reform.
The BIS department added: “The overall response to our consultation on binding shareholder votes demonstrated wide support for what we’re trying to achieve. It also prompted a lot of helpful, practical suggestions about how we can ensure the new voting system is effective and workable, without increasing administrative burdens on companies and shareholders unnecessarily.
“There are pros and cons to this approach and we are still considering the measures we want to take forward through legislation.
“We are also looking at ways to strengthen the current annual advisory vote on backwards-looking pay. We will announce the final package shortly.”