Cable proposals ‘evolution not revolution’ - Barbour

Proposals by the Business Secretary, Vince Cable in relation to executive remuneration have been welcomed as a “measured approach” by a leading business policy expert.

James Barbour, Technical Policy Director at ICAS said that the proposals would ensure “evolution not revolution of executive remuneration, ultimately leading to more transparent disclosure”.

However, Barbour took issue with the inclusion of binding shareholder votes.

In his plans, Cable outlined proposals for binding votes in relation to future pay policy for the Board as a whole, and the requirement to get binding shareholder approval of any directors’ notice period longer than a year and on exit payments of more than one year’s basic salary or the minimum contractual amount.

“Dissatisfied shareholders already have the additional option of voting against the annual re-election of the remuneration committee chairman,” said Barbour.

“Additionally there are also real practical issues associated with implementing this proposal.  It may be very difficult to determine what aspect of the remuneration proposals constitutes a negative vote without a further detailed consultation of shareholders.

In his plans, Cable called for the opening up of remuneration committees, calling the current system “symptomatic of the lack of diversity in UK boardrooms”.

However, Barbour said that it remained to be seen whether opening up membership of these committees would “be beneficial or lead to material changes in directors’ remuneration.

“The Remuneration Committee must have members who have a full understanding of the company’s strategy, and we believe that the current Non-Executive Director structure is still fit for purpose,” he said.

“It must be noted that Remuneration Committees should, can and do take independent advice on remuneration structures, their appropriateness to the company and the general remuneration environment.”

Barbour said that a greater emphasis on linking pay to the long-term performance of the company needed to be the main outcome of any measure. This would help eliminate reward for failure, he said.

“The last few years have undoubtedly brought about a greater awareness of the correlation between pay and performance and we believe this trend will continue.

“As a result boards and remuneration committees will be more mindful of the adverse shareholder and public reactions if they advocate large remuneration increases on the back of posting poor results.”