Reforming executive pay

The subject of excessive executive pay is a hot political topic currently, with politicians from each party striving to score points with proposals they believe will satisfy public opinion.

One method of curbing excessive rewards for executives is giving greater powers to shareholders.

This is favoured by Business Secretary Vince Cable who is planning to announce measures today in a speech to the Social Market Foundation.

Other proposed measures include making remuneration reports easier to understand and executives needing to justify their salaries in relation to the earnings of other employees.

On shareholder influence over remuneration, this could see shareholders given a binding vote on areas including notice periods and exit packages.

These proposed measures could represent good news for investors.

The Investment Management Association (IMA) has supported these calls for reforms to executive pay, welcoming the strengthened accountability it would provide.

These measures could place a lot of power in the hands of fund managers, with the IMA representing asset managers with £4 trillion of funds.

If the proposed package of measures is introduced, the selection of investment funds in the future might need to include an understanding of the approach taken by the fund manager towards executive pay.

That said, with the government already in a position to curb excessive pay and bonuses at some of the major High Street banks but seemingly failing to exercise their influence as major shareholders, the prospect of decisive action on this subject seems limited.

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