UK Government Consults on Increasing Shareholder Voting Rights in Relation to Quoted Company Directors' Pay

On March 14, 2012, the UK Government published a consultation on shareholder voting rights in connection with “executive” pay. The consultation follows an earlier discussion paper in which, among other questions, the Government asked whether a binding vote on remuneration would improve shareholders’ ability to hold quoted companies to account on pay and performance. The proposals form part of a package of measures the Government intends will address failings in the UK corporate governance framework for executive remuneration.

The proposals comprise three main aspects, which are detailed further in the attached memo: (a) the introduction of a requirement that quoted companies obtain specific shareholder approval of their remuneration policy and framework proposed for the forthcoming year, with such vote being binding on the company; (b) the introduction of a higher level of shareholder support required for this remuneration policy and framework, likely to be a level between 50% and 75% (with the preservation of the existing level – a simple majority – required for a quoted company’s report on its implementation of remuneration policy (including payouts) in the preceding year); and (c) the introduction of a shareholder vote on termination payments to directors in excess of one year’s base salary.