20/06/2012 05:17 BST | Updated 20/06/2012 10:58 BST

Business Secretary Vince Cable Reveals Executive Pay Plans

Vince Cable moved to strengthen the hand of shareholders today by giving them powers to lead the crackdown on excessive executive pay deals.

The Business Secretary's proposed reforms will force companies to have binding votes on directors' pay plans every three years, or annually if changes are made.

For the first time, this vote will be legally binding - meaning that investors can overthrow pay proposals and that companies will not be able to make payments outside its scope.

The move represents a climbdown on previous aims to hold compulsory votes on pay annually, but will vastly improve current rules in which shareholder votes are advisory and can be ignored by companies.

Mr Cable has also stuck by plans to insist firms provide one single figure for total annual pay in order to make remuneration more transparent.

He said the package of reforms will "strengthen the hand of shareholders to challenge excessive pay whilst not imposing unnecessary regulatory burdens".

He said on unveiling the reforms that ever-increasing pay packets had become "irrational and damaging" in the years leading up to the financial crisis.

"Top pay got out of control, most obviously in the banking sector, but also elsewhere in corporate Britain."

"It was irrational and damaging and it was necessary that shareholders should have the confidence to act," he added.

vince cable

Vince Cable announced his plans in the House of Commons today

The changes also come amid growing shareholder activism over executive pay, as shown by last week's rejection of WPP's remuneration report which included a £6.8m pay deal for chief executive Sir Martin Sorrell.

Mr Cable said his drive to clamp down on excessive pay will "give shareholders new powers to hold companies to account on the structure and level of pay, make it easier to understand what directors are earning and how this links to company strategy and performance".

Mr Cable dropped a proposal that the binding pay vote must receive the backing of a super-majority of three-quarters of investors, instead opting for a simple majority of 50% required.

He said it would have been legally very complicated to insist on a super-majority and could have allowed investors to "hold a company to ransom".

The Financial Reporting Council confirmed it would consult on measures to improve the corporate governance code following Mr Cable's plans.

It will look at extending clawback provisions and limiting the practice of executive directors sitting on the remuneration committees of other companies.

Meanwhile, shadow business secretary Chuka Umunna hit out at the Government for backing down on proposals to hold a binding vote every year and for resolutions to require a super-majority to be approved.

He also called for employee representatives to sit on boards to have their say on executive pay - a recommendation that Mr Cable has said would not be workable.