Vince Cable, the Business Secretary, said that shareholders would get new powers to enforce executives’ pay deals, and that they would be told to take account of “pay differentials” between the best-paid and ordinary workers.
Independent analysts said the changes would leave Britain with the toughest rules on executive pay in the world.
Conservative MPs described Mr Cable’s statement as “claptrap” that would harm the economy. Labour said the plans did not go far enough because workers would not get seats on company remuneration committees.
Mr Cable announced a formal consultation on giving shareholders a legally binding vote on executive pay in public companies’ remuneration committees. He also proposed a minimum threshold of 75 per cent support for a pay vote to be successful. That requirement would have blocked recent pay deals at major companies, including National Grid, Xstrata and WPP.
The announcement follows calls by all the main party leaders for British capitalism to be reformed to reflect public concerns about corporate influence and wealth inequality.
Other changes proposed include “clawback” rules for bonuses, forcing bosses to pay back money if a company’s long-term performance declines. Other rules would push companies to widen the range of people sitting on their pay committees, to include more outside experts.
New transparency requirements would also mean that companies would publish a single figure for the total pay, bonuses and other benefits for each director, and an explanation of how that pay related to company performance.
Mr Cable said: “Remuneration committees will be expected to explain why they have used specific benchmarks and how they have taken employee earnings — including pay differentials — into account in setting pay,” he said. He stopped short of demanding companies publish a “pay ratio” between top and bottom earners, saying such ratios were not always useful or accurate.
Sean O’Hare of PricewaterhouseCoopers, the accountancy firm, said Mr Cable’s changes would create the toughest pay regime of any advanced economy.
“Nowhere else in the world will executives see their pay subject to such rigorous checks and scrutiny,” he said.
He predicted that the changes would not necessarily result in pay cuts, because institutional shareholders would be “loathe to use the binding vote” against executives. John Cridland of the CBI business lobby, said greater transparency was welcome, but raised concerns about binding remuneration votes.
“Such a change does not make for good corporate governance as investors will be second-guessing and ‘man marking’ directors,” he said.
In the Commons, Conservative MPs attacked the pay plans as unnecessary interference.
Philip Davies described Mr Cable’s speech as “drivel” that would hamper British companies. “Get off their backs and let them get on with creating wealth,” he told the minister. Peter Bone, another Tory backbencher, said Mr Cable’s proposals were “liberal, Left-wing claptrap” that would do “nothing to increase growth and employment in this country”.
By contrast, Labour said that the rules were inadequate. Chuka Umunna, Mr Cable’s Labour shadow, said the plans “do not go far enough in promoting the transparency, accountability and fairness that people want to see”.
ÞHigh-earners should pay more tax, a senior Liberal Democrat MP has said. David Laws, a close ally of Nick Clegg, said ministers should “clamp down on reliefs and allowances that particularly tend to favour people at the very upper end of the income distribution”.