‘We cannot accept directors’ pay rising five times greater than average workers’ pay as happened last year…and there is evidence of a clear market failure’. These were the views of the Secretary of State for Business, Innovation and Skills when announcing the Government’s response to the recent consultation on executive pay in the House of Commons last month.

The original consultation paper, published in October 2011, included a wide range of proposals such as appointing employee representatives to remuneration committees, but in the end these were rejected. Instead, the final recommendations concentrated on proposals that had already been trailed by the Prime Minister. The key measure proposed is giving shareholders a binding vote on executive pay, notice periods and exit packages in place of the current power of holding an advisory vote. A second strand is greater transparency, requiring the publication of all directors’ salaries, while all companies will need to introduce ‘clawback’ policies, allowing them to recoup bonuses in cases where they are later shown to be unwarranted.

Additionally, the business secretary also wants to see remuneration reports becoming easier to understand and companies to explain executive salaries in relation to the earnings of other employees. Further, companies should encourage a wider range of people onto company boards, including academics, lawyers, public servants and those who have never served on a board before.

Full details of how each of these proposals is expected to be implemented in practice remain to be fleshed out and the key question remains is will they achieve the stated aim of curbing executive excess? The Department for Business, Innovation and Skills has released details of the proposals, together with a summary of the responses to its discussion paper.