CBI Warns UK Government Against Blurring Shareholder and Management’s Pay Responsibilities

The Confederation of British Industry (CBI) has responded to the UK Department for Business (BIS) consultation on shareholder voting rights. CBI chief policy director, Katja Hall, said: “The CBI has been clear that executive remuneration must always be squarely linked to performance, and that this link needs to be made more transparent and in some cases strengthened. That is why we support the publication of a single figure for director’s pay.

Hall believes that only by first getting the facts right can there be a meaningful debate and enable shareholders to hold boards to account. For instance, last year pay for chief executive officers (CEOs) rose by an average of 10%, not 49% which has been widely reported.

“Companies should always demonstrate how executive pay links to company strategy,” she said. “Recent claims that there is no link between executive reward and company performance are misleading. The median rate of growth in profit for FTSE 100 companies since 2003 has been more than twice the median growth rate of chief executive remuneration over the same period.

“Remuneration committees have a crucial role in delivering reward that is linked to performance and the CBI will support measures that strengthen remuneration committees and underpin their independence. But we absolutely do not accept the myth of a ‘cosy club’ of business leaders setting pay for each other. The evidence shows that no two FTSE 100 executive directors sit on each other’s remuneration committees.”

On proposals for binding votes on remuneration, Hall said: “Any introduction of binding shareholder votes on remuneration should be on the principles of pay strategy, not on individual remuneration packages. This would allow shareholders to have their say on pay, without asking them to make decisions on specific pay packages, which is the role of the remuneration committee.”

On proposals for a higher threshold to pass votes on pay issues, Hall said: “The government’s proposals for a higher voting threshold leave companies at the mercy of activist minorities, or result in pay policy going against the wishes of the majority of shareholders. They would also apply a higher standard of control to pay than is placed on the buying and selling of the company which would be completely disproportionate.”

On proposals for binding votes on exit payments over 12 months, Hall said: “It is completely impractical to require boards to call an extraordinary general meeting or wait until the company annual general meeting to remove under-performing directors. Company management must be able to act quickly and decisively to remove underperformers, which would be impossible if shareholders had to be consulted. A more workable way to increase scrutiny would be to make exit payments subject to a backward looking advisory vote.”


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