20 June 2012
Last updated at 07:52 ET
Business Secretary Vince Cable has announced plans to force companies to have binding votes on executive pay every three years.
Companies will then have to stick to their pay plans for the next three years or have another shareholder vote.
Labour has said there should be a binding vote annually, however.
Under the new plans, firms will also have to publish a simple figure every year showing how much executives have been paid.
And they will have to say how much an executive will be paid if they are sacked or resign.
Mr Cable said the proposals were a “strong package of reform”.
Currently, while shareholders get to vote on executive pay packages every year, their votes are not binding so in theory the board can ignore the vote.
Shadow business secretary Chuka Umunna criticised the plans for falling short of demands for a binding vote annually, and accused Mr Cable of making a U-turn on the issue.
“It is deeply disappointing that having marched us all up the hill he appears to have marched us back down again,” he said.
Gavin Oldham, chief executive of retail stockbroker The Share Centre, said there would be some disappointment that votes would be every three years, rather than annually.
“They’ve probably gone for the three-year cycle so that it is more forward-looking rather than retrospective,” he told the BBC’s Today programme.
“Because to set up retrospective issues between executive directors and boards as a result of a shareholder vote would just lead to legal battles and nobody wants that.”
But he added that it was a step in the right direction.
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In theory, the reforms should change the balance of power between investors and boardrooms”
“Institutional shareholders are now realising what personal investors have actually understood for a long time – that executive pay matters and they need to take more attention of the general conditions of the economy and how their employees are getting on.”
BBC business editor Robert Peston said executive pay rises may also be tempered by the new simplicity and clarity Mr Cable hopes to bring to the question of how much bosses actually pocket every year
“Right now it is very difficult to see the total amount that any executive takes home because the remuneration sections of annual reports are immensely long, complex and woolly, especially in regard to earnings from large and important long-term incentive plans,” he said.
Last week, shareholders in the advertising group WPP voted against the company’s executive pay report, which included a £6.8m deal for chief executive Sir Martin Sorrell, by a majority of 59.5%.
Last month, shareholders in the insurance company Aviva voted down its remuneration report.
Some observers said that there was a shareholder spring taking place, with shareholders becoming more active.
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