All companies with more than 250 employees should be forced to publish the salaries of their highest earners and told to consult their employees on executive pay, Vince Cable, the Liberal Democrat business secretary, will say on Sunday.
The radical idea, which would involve new legislation, is to be included in the Liberal Democrats' election manifesto and will be a key demand of the party in any negotiations on a new coalition deal with either the Tories or Labour for the next parliament.
Under Cable's blueprint, companies would also have to publish details of median pay levels for staff so that they could be compared with the amounts paid to the highest earners in each firm, in a bid to increase transparency.
Details of the manifesto commitment reflect the Liberal Democrats' drive to present themselves as the most consistent advocates of "fair pay" at the next election. Having been severely criticised for a series of policy U-turns, including those on tuition fees and a rise in VAT in 2010, which party leader Nick Clegg had opposed, the Lib Dems say that on fair pay they have delivered – most notably honouring their pledge to raise the rate at which income tax becomes payable from £6,500 in 2010 to £10,000.
In April the tax-free threshold will be raised again to £10,500, as announced by the chancellor, George Osborne, in his last budget. Osborne has angered the Lib Dems by trying to take personal credit for the increase, which they say has only happened at their insistence. In March this year, Clegg accused his coalition partners of displaying "brass neck" by claiming ownership of the policy.
Last year Cable introduced new rules forcing publicly listed companies to give shareholders a binding vote on directors' pay. A listed firm's remuneration policy now requires the approval of more than 50% of shareholders to be passed.
However, the new moves announced on Sunday would go much further, affecting all companies with more than 250 employees. Workers would not be able to veto or block pay deals for top earners, but Cable believes strong objections from a workforce would put pressure on bosses and, if ignored, would have a bad "reputational impact".
Similar proposals were made by the High Pay Commission, established by the centre-left thinktank Compass and the Joseph Rowntree Charitable Trust, which reported in November 2011. The government took up many of the commission's proposals, tightening rules on transparency, but Cable believes more still needs to be done.
Between 1998 and 2010, while general average earnings grew by 4%, average pay for chief executives rose by 13% each year, despite no overall increase in the FTSE 100 share index over that time. In the "shareholder spring" of 2012, investors mounted several high-profile challenges to executive pay packages, in protest at boardroom salaries rising when share prices were declining. Cable now wants to empower workers as a well as shareholders.
Ministers say there has been some progress to curb excessive pay as a result of reforms introduced to date. Median total remuneration awarded to FTSE 100 chief executives fell by 5% in 2012 and by a further 7% in 2013 (using their methodology).
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