Protest over pay law for directors

BRITAIN'S biggest companies and shareholders are mounting a massive protest against Government plans to interfere in boardroom pay. Consultation documents have been circulated among senior figures in the City and industry proposing that legislation on pay be imposed by the beginning of next year.

But there is a widespread belief that the Government's plans may do the opposite of what is intended and increase the amount that executives are paid. Companies are also saying they cannot realistically meet the proposed timetable.

Trade Secretary Patricia Hewitt is demanding that companies provide more information about executive pay and remuneration policy. She also proposes to force companies to put their remuneration reports to a yearly shareholder vote and suggests that consultants who provide advice on pay be named in the annual report.

The moves have met with fierce opposition from business leaders and shareholders. 'We do not believe legislation is the best way forward. It is too inflexible,' said one fund manager responsible for billions of pounds of pension money. 'We far prefer self-regulation because laws become out of date so quickly,' said another.

The Government's interest in boardroom pay goes back to when Stephen Byers ran the Department of Trade. Discussions have been taking place since Labour came to power in 1997 as ministers have wrestled with the problems of linking pay to performance and the huge pay-offs given to executives who have failed to do their jobs properly. There has also been considerable concern about the independence of remuneration committees. These are made up of non-executive board directors and are supposed to be impartial.

'Two of the DTI's biggest concerns have been the independence of remuneration committees and rewards for failure. Its proposals do not properly address either issue,' said Belinda Hudson of executive compensation advisers William M Mercer.

Mercer, which has canvassed opinion from more than 50 leading companies, also believes increased disclosure may prompt pay increases. 'This could fuel executive pay rises as directors try to keep up with the Joneses,' said Hudson.

The view was echoed by shareholders. 'Experience elsewhere, like in the US, shows pay going up when disclosure is increased,' said one big investor.