LONDON Britain's stock-market listed companies should be able to claw back bonuses paid to poorly performing executive board members, a regulator proposed on Thursday, mirroring steps already being taken by banks.
The Financial Reporting Council (FRC) published how it plans to toughen its corporate governance code, a set of standards which companies must comply with or explain publicly why they do not.
The audit watchdog's move follows public anger over high pay
for bosses when most people have endured several years of austerity and challenges by investors in 2012 frustrated at boardroom salaries rising when share prices were declining.
Britain's business minister Vince Cable on Tuesday warned banks and other major companies to rein in excessive and disproportionate executive pay or face tougher rules.
Banks already have curbs on executive pay, brought in by the European Union following the 2007-09 financial crisis. These include requiring most of a bonus to be deferred over several years, be partly paid in shares, and to be clawed back if performance turns out to be poor. Bonuses paid from early 2015 will be capped at no more than fixed pay, or twice that amount with shareholder approval.
Although less strict than the rules for banks, the audit watchdog hopes its standards will encourage executive board members to put a company's well-being before their own.
A public consultation on the proposals runs until June and the rules are due to come into force in October.
"These proposals, which reflect the views of investors and others on earlier consultations, are intended to encourage boards to focus on the longer-term, and increase their accountability to shareholders," Chief Executive Stephen Haddrill said in a statement.
The watchdog wants to make a company's remuneration committee more responsible for ensuring that executive pay is designed with long-term success in mind, rather than short-term gains that could encourage excessive risk-taking.
The proposed code says companies should put in place arrangements so they can recover or withhold bonuses when, with hindsight, performance turns out to be poor. Companies should also consider minimum periods before an executive can cash in parts of a bonus.
During the "shareholder spring" of 2012, some executive pay packets were challenged, though not all successfully.
The regulator wants to make it harder for companies to brush off critical shareholders.
Companies would have to explain when publishing voting results at annual meetings how they will engage with shareholders when a significant percentage of them have voted against a resolution.
Barclays bank (BARC.L) holds its annual meeting on Thursday and faces some criticism that bonuses for investment bankers rose last year despite a drop in profit.
Other changes proposed include requiring companies themselves to say what could stop them staying in business for the year ahead.
That task is currently left to the company's auditor to say in the annual report whether it believes the firm can stay a "going concern" for the following year.
Policymakers have questioned why banks were described as going concerns in the run-up to the financial crisis, only to need rescuing by taxpayers months later when markets turned rocky.
Firms would also have to "robustly" assess their main risks and how they are managing them, rather than the current practice of making generalised statements in annual statements to cover themselves.
The Institute of Directors lobby group welcomed the proposals.
"Although there is some evidence that the pace of executive pay inflation at large listed companies has moderated during the last year, this is an issue which continues to damage the reputation of UK business," director of corporate governance Dr. Roger Barker said in a statement.
(Reporting by Huw Jones; Editing by Erica Billingham)