30 SECOND GUIDE TO ...

BINDING SHAREHOLDER VOTES

What do you mean?

EVERY year companies listed on the stock market hold an annual general meeting. It’s where shareholders – from giant pension funds to ordinary members of the public – get to have a say on how the firm is run.

How?

Shareholders vote on a wide range of issues, including how much bosses are paid and whether board directors should be re-elected. The problem was

So what’s changed?

shareholders had no real power, so even if they voted to reject the firm’s remuneration report the company could ignore them because the result wasn’t binding. The issue of fat-cat pay rose up the political agenda in 2012 during the so-called shareholder spring when investors at several firms registered protests over pay – but the majority of companies continued as before.

But in October 2013, the then Business Secretary Vince Cable gave them binding votes over pay that companies had to obey.

How does this work?

This binding vote does not apply to the remuneration report – which describes rewards that executives have already received. Instead it applies to plans for rewarding top executives in the future.

A firm’s remuneration policy requires the approval of more than 50pc of shareholders.

The companies must stick to the policy for the following three years or have another vote.