The rules are seen as giving shareholders of UK companies, where directors have gotten windfall salaries despite a lagging financial performance, a fairer shot to contest the payments, according to a Reuters news report.
Under the new rules, companies listed on the stock market have to publish a directors’ pay report during their annual reporting cycle and must get shareholders to approve the document at each annual meeting, Reuters said.
The government said reports must include details of the justification for any compensation packages given in the preceding year and a performance graph with information on how the company has performed against its rivals.
The report should also include the names of any consultants used in deciding executive salaries and details on whether those consultants were appointed independently and whether they advise the company on other issues.
The government’s new rules are due to become law before the current parliamentary session ends in October and will apply to quoted companies whose financial years end on or after December 31, 2002, according to Reuters
As have their US counterparts, UK companies have seen growing investor dissent this year because many executives have gotten fat paychecks even though the share prices of their firms have plummeted in the bear market.
For example, mobile phone giant Vodafone faces a potentially hostile shareholder meeting next month after it paid Chief Executive Chris Gent a $3.6 million annual salary despite racking up Britain’s biggest corporate loss.
Vodafone has argued, along with many other blue-chip firms, that they need to award lucrative salaries to prevent top executives from defecting to rival firms. However, many shareholders and shareholder groups feel executive salaries have risen out of proportion.