Investors need bigger say to tackle executive pay - IoD

The next government should give investors a bigger say on pay levels at listed companies to help restore public trust, according to the Institute of Directors (IoD).

The organisation said it recognised that confidence in rewards had been low since the financial crisis, with many shareholder rebellions often resulting in no changes to pay policies.

It suggested that if 30% of investors oppose a remuneration report at an annual meeting, the company should have another look and then allow shareholders a fresh vote.

The proposed reform - ahead of the General Election - builds on the findings of a stinging report by MPs (BSE: MPSLTD.BO - news) last month which found no credible link between pay and performance.

Its findings included a call for worker representatives on company boards and a new code of corporate governance for major privately owned companies - such as Sir Philip Green's Arcadia Group.

Stock market-listed firms currently only have to submit their pay reports to a binding shareholder vote every three years.

Companies to have faced pay revolts in recent times include BP, Crest Nicholson (Frankfurt: A1KCZN - news) , AstraZeneca (NYSE: AZN - news) , Thomas Cook (Frankfurt: A0MR3W - news) and Ladbrokes Coral (LSE: LAD.L - news) .

There have been some notable climbdowns though amid anger - often expressed publicly - by institutional shareholders.

The most high-profile case involved the best-paid executive on the FTSE 100.

Sir Martin Sorrell, chief executive of WPP (Frankfurt: A1J2BZ - news) , had his awards trimmed to help avert a fresh row with investors over his package after a previous scheme saw him net £62m in 2015 alone.

Oliver Parry, head of corporate governance at the IoD, said: "UK company boards have been put under unprecedented scrutiny in recent months, with the Government and the House of Commons business committee suggesting reforms to executive pay and the governance of private companies.

"Business has been facing a crisis of public confidence since the financial crisis, and the political impetus to intervene will not disappear, whoever is elected.

"UK corporate governance is highly regarded across the world, but there is still a pressing need to rebuild public trust in big business to work in the long-term interests of investors and employees, rather than the short-term interests of managers.

"Now (Frankfurt: 11N.F - news) is the time for sensible reforms which increase transparency and draw more engagement from shareholders."