Proposals
to curb excessive pay-offs for directors who quit failing companies have been
announced by trade and industry Secretary Patricia Hewitt.
In
a paper entitled Rewards for Failure, the Government outlines alternative
strategies for closer links between directors’ pay and performance.
These
include shortening directors’ notice periods to about six months, and giving
company boards the right to veto the pay packages of failing directors.
The
Government will ask shareholder groups, trade unions, and business lobbyists to
comment on the document, and may come forward with concrete proposals later
this year.
Business
groups have urged the Government not to legislate against ‘fat cat’ pay, saying
that new regulations would create unnecessary legal complexities for big
companies.
However,
the paper makes clear that the Government has not ruled out changing the law to
stop hefty pay-offs for directors who preside over share price collapses or
large-scale job losses.
"Britain
has some of the best and most successful businesses in the world. But the good
reputation of the majority is being tarnished by the bad practice of the
minority," Hewitt said.
"We
have no problems with big rewards for big success, but shareholders are rightly
concerned when directors leave failing companies and walk away with excessive
payouts."
The
Government’s move comes in response to a growing tide of resentment over ‘fat
cat’ pay over the past year.
Sign up to our weekly round-up of HR news and guidance
Receive the Personnel Today Direct e-newsletter every Wednesday
Last
month shareholders at pharmaceuticals giant GlaxoSmithKline voted against a pay
package that entitled chief executive Jean-Pierre Garnier to up to £22m if he
left the job early.
