January 13, 2012
Prime Minister, David Cameron has suggested that new powers may be introduced to allow shareholders to veto wage or bonus agreements for directors. The Institute of Directors however has said that this will create a litigious minefield and make it more difficult for companies to hire the best directors. A spokesman for the Institute of Directors said: "It wouldn't be practical or a good idea after the remuneration committee had set pay, not only from a legal point of view but recruitment too" Speaking to The Telegraph newspaper, Mr Cameron said he was keen to stop executives from “patting each other’s backs, and handing out each other’s pay rises”. One of Mr Cameron’s key proposals for tackling the issue is to “empower” shareholders by giving them a “vote on top pay packages”. Tom Flanagan, an Employment Solicitor explained that whilst companies could include clauses stating that the pay of directors was subject to shareholder approval this could still lead to litigation as the shareholders reasons for rejecting pay would be challenged in court. Mr Flanagan said: “The taxpayer-backed banks would spend taxpayer money defending why they had rejected pay, which undermines the point of this reform”. These proposals are being discussed just as the bonus season is starting to kick in. It was reported this week that the head of Royal Bank of Scotland’s investment bank is likely to receive a bonus this year of more than £4m despite the bank being backed with taxpayer money. There are likely to be many more high-profile bonuses announced over the coming weeks and so this is an issue which is unlikely to go away.