Newspaper article The Evening Standard (London, England)

High Price for Compulsory Votes on Directors' Pay

Newspaper article The Evening Standard (London, England)

High Price for Compulsory Votes on Directors' Pay

Article excerpt


TRADE Secretary Patricia Hewitt proudly announced last month that the Government intended to combat excessive boardroom pay by forcing companies to offer shareholders an annual vote on directors' reports on remuneration. The move was shrugged off by most institutions as too little too late.

Investors pointed out that once remuneration reports are compiled, pay structures have been set up and cannot be undone. Even if a report is voted down, executives' contracts will still be in place and changes cannot be made until the following year.

But many companies are understood to be furious. Directors had been lobbying Downing Street and were apparently confident that the idea of an obligatory vote would be quashed by Tony Blair. After all, it had been festering within the Department of Trade for around two years. There is a belief in some quarters that the announcement would never had been made had the Prime Minister not been preoccupied with his role as President Bush's principal ally in the war against terrorism.

Now corporate governance specialists are concerned that executives may vent their frustration by cutting back on dialogue with their biggest shareholders. Such a move would be disastrous. Currently, most large companies undertake discussions with fund managers ahead of implementing new pay schemes. Investors find these chats far more useful than they would a vote offered once the schemes are signed and sealed.

The DTI intends to put draft legislation on remuneration reports out for consultation before Christmas.

It would like to see the issue on the statute books early next year, well in time for the 2002 round of annual meetings. Officials may be less than pleased by the responses they get. Concern about unintended consequences from investors and anger from corporate Britain hardly translate into a glowing endorsement of Government policy. …

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