Vince Cable, UK business secretary: threat of penalties

Vince Cable has written to chairmen of FTSE 100 remuneration committees to warn that pressure for further government action will “inevitably result” unless they do more to curb executive pay rises.

The business secretary’s intervention comes ahead of Barclays’ annual meeting on Thursday, at which investors are expected to register a sizeable protest over the bank’s bonus increase.

Barclays has raised bonus payments by 10 per cent in spite of a one-third drop in pre-tax profits. This irritated many shareholders, who pointed out that last year’s bonus pool was more than 2.5 times the size of the dividend payout.

Mr Cable said in his letter: “Excessive and disproportionate pay in the corporate sector damages popular trust in business and threatens to undermine business’ licence to operate.”

His move follows a speech last month in which he warned that companies could be forced to consult their workforces on proposed rewards for executives if pay and performance were not brought more strictly into line.

He said he would also consider options including stricter regulatory oversight of pay reports and policies and a requirement on shareholders to disclose how they have voted on pay.

Mr Cable is concerned that some companies are ignoring the spirit of reforms introduced last October. Shareholders now have a binding vote on future pay policy at least every three years. Companies are supposed to bear in mind the relative salary increases for the workforce and have to disclose a single figure for the total amount received each year by executives.

FTSE 100 chief executives’ total pay in 2013 was 120 times the average earnings of their employees – up from 47 times in 1998, according to Manifest, the proxy voting agency, and consultancy MM&K.

Mr Cable said on Monday: “A lot of trust was lost due to extremes of what happened before 2010 when pay accelerated massively, unrelated often to the performance of the company. There is now an opportunity for companies to make peace with the public.”

He added: “This is particularly true in the banking sector, where pay reached dangerous levels, and with Barclays in particular coming up on Thursday we will see how far they have listened to pressure from the people who own the banks – the shareholders – and exercise responsibility and long-term thinking.”

ISS and Glass Lewis, which advise institutional investors how to vote at annual meetings, have both called on shareholders to withhold support from Barclays’ remuneration report.

Mr Cable’s letter is an attempt to persuade companies to come into line voluntarily. He has said he will “take stock” after this year’s voting season is over.

He said while there were some positive signs, “concerns have been raised that some companies’ are not observing the spirit, as well as the letter, of the new reporting regulations. And there are signs that some companies continue to consider pay awards which appear excessive in light of recent performance.”

Mr Cable told the chairmen: “You will be conscious that this issue continues to be the focus of considerable public debate. Unless business is seen to act responsibly, pressure for further action will inevitably result.”

A group representing some institutional investors and pay campaigners made a formal complaint to regulators last month, suggesting companies were breaking the rules.

It said some companies simply asserted that they had considered pay across the workforce in deciding what to pay directors, without showing how they had done so as the new rules require.

Others made comparisons founded just on base salary, even though chief executives typically receive annual bonuses and long-term incentives as well.

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Letter in response to this article:

Acknowledge that companies remain separate legal entities / From Prof Kent Greenfield and others

Shareholders own shares, not company / From Mr Christopher Halburd

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