The fund manager's call for binding votes on boardroom pay is one that the coalition should put top of its agenda
Well done Fidelity Worldwide, which today broke new ground for a mainstream fund management house. It called for a binding vote on boardroom pay and gave an account of how to make its idea work. First, boards should have to win shareholders' approval before handing out bonuses, or variable pay in the jargon. Second, the threshold for approval should be 75%. Third, the chairman of the pay committee would have to resign that role if a second attempt to win 75% support were to fail.
The great advantage of this plan is that it makes shareholders' votes on pay forward-looking. The current arrangement is a nonsense. It is an advisory vote about pay that has already been dished out. What's the point? The most that a "no" vote can achieve is cause the chairman of the pay committee to be mildly embarrassed; it cannot alter payments that are deemed by the owners of the company to be objectionable.
Executives will scream that a 75% pass mark is not democratic – the will of the minority could prevail. So it could, but 75% majorities are already required for so-called special resolutions affecting critical areas such as changes to a company's articles of association. Pay is also central to the relationship between a board and its shareholders.
In any case, boards have invited proper scrutiny. Fidelity's Dominic Rossi is correct when he says that pay schemes have become too complex and "in some cases, too generous and out-of-line with the interests of investors". Giving shareholders a forward-looking, binding vote is the most simple corrective – it would inject more accountability into the system. The government should put Fidelity's idea top of its in-tray.