Vince Cable, Secretary of State for Business, Innovation and Skills, this week announced the latest government consultation on executive pay, this time aimed specifically at enhancing shareholder voting rights on the matter.

The consultation seeks opinions on the following outline policy proposals:

• An annual binding vote on future remuneration policy
• Making the vote on future remuneration policy subject to a super-majority threshold
• An annual advisory vote on implementation of policy in the previous year
• A binding vote on exit payments of more than one year's base salary

Looking at the proposals themselves, it is clear they will have an impact on service contracts, possibly requiring the re-negotiation of some in order to ensure they eradicate 'guarunteed'  bonuses or loss of office amounts which would come under the purview of direct shareholder approval.

Concern about whether the introduction of a binding vote would have the unintended consequence of discouraging shareholders from putting their ballot forms above the parapet has been headed off to a degree by making just the forward-looking part of remuneration voting binding, whilst retaining the advisory nature of approval of pay already defrayed.

The prospect of the pay arrangements available to new recruits (salary as well as recuirement incentives) being limited to within the existing agreed pay policy could inhibit recruitment unless shareholders agree to some degree of flexibility within pre-determined limits. Although not all subscribe to the view that limiting executive pay would cause a mass exodus of leadership talent from the UK, such a limit might serve as a disincentive to work here. On the other hand, one might wonder if pre-agreed flexibility might be used to effectively define (and rachet up) the pay deals of new recruits; perhaps an alternative might be a ex-post advisory shareholder vote in addition to their election?

Some comment has already been made that the proposed super-majority would give too much power to minority shareholder groups. However, there is precedent in law for such a requirement, the very reason for which is the protection of minority shareholder interests. With the UK characterised largely by very dispersed share ownership, UK Plc  need not worry about being held to ransom by a 25% minority if they've got things broadly right in the first place.

There is, however, an elephant at the table: An enhancement of shareholder rights on such a high profile issue puts in even greater relief the fundamental problems with shareholder voting mechanisms and processes which must be fixed first fopr these reforms to be effective. Increasing the size of a car engine does not automatically increase the size of the tank that supplies it.

The purpose of the consultation is to seek evidence on the impact, costs, benefits and likely behavioural effects of the proposals. The deadline for responses is Friday 27th April.

Executive pay: shareholder voting rights consultation (PDF, 212 Kb)