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The current recession has led to a refocusing, or some may say
witch hunt, against various groups of individuals who seem to be
unfairly benefiting despite the recession. The initial target was,
of course, the bankers. Newspaper campaigns have moved on to
targeting those who seek to avoid, albeit legally, tax.
Directors' remuneration has become another target. Shareholders
have been voting down proposed remuneration packages for directors
at annual general meetings and there is a general perception that
directors are being rewarded for mere attendance at work and not
for exceptional performance. This shareholder spring is not just a
UK phenomenon. For example, the new French government has announced
plans to cap the pay of top executives at state controlled
companies to a maximum of twenty times that of their lowest paid
employee. The coalition government clearly sees executive pay as a
potential vote winner and has now announced plans to deal with this
issue.
The government's approach, as outlined by Vince Cable and
now added in to the Enterprise and Regulatory Reform Bill, is to
introduce a binding shareholder vote on pay policy which will be
revisited every three years. A simple majority of shareholders will
approve the policy. The original proposal of a vote every year has
been dropped. Pay policy would require a report setting out key
elements of pay, details of employment contracts, how directors
will get paid for performance that is above or below target and
material factors taken into account when setting pay policies.
The same pay policy will also deal with the principles that the
company will apply when dealing with exit payments. Those
principles will include how exit payments will be calculated and
how companies will distinguish between the types of leavers.
It does appear that the days of gold plated pay-outs for failed
leavers may be coming to an end should this legislation be adopted.
It remains to be seen, however, how such legislation will work in
practice.
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