Due to a significant number of large company scandals and collapses internationally in recent years, for example, Robert Maxwell, Royal Bank of Scotland (RBS) in the UK and Lehman Bros, WorldCom in the US. These has raised an attention to the importance of corporate governance. According to the definition of “Corporate Governance” by The Economic Times (2009). It is “Corporate governance refers to the set of systems, principles and processes by which a company is governed. They provide the guidelines as to how the company can be directed or controlled such that it can fulfil its goals and objectives in a manner that adds to the value of the company and is also beneficial for all stakeholders in the long term.” The main purpose of corporate…show more content… Therefore in 2012 the government introduced the Enterprise and Regulatory Reform Act in order to subject shareholders a binding vote on executive pay. With this power, shareholders can hold companies to account and hence companies need to get shareholders’ approval before making payments to executives. Therefore, shareholders will have a clear mind on director’s remuneration policy which will set out how the company proposes to pay director in order to ensure the relationship between director’s pay and company performance. It requires more than 50% of shareholders to pass the policy, otherwise it will go back to last approved policy. In order to administrate the company effectively, a balance is needed to be taken between investor’s expectation and executive’s incentive to work. Hence, this essay will discuss whether shareholders should have a say on Executive Compensation in the UK context. The following will discuss several reasons that shareholders should have a say on executive pay.
Firstly, The Walker Report in 2009 suggests shareholders to be more active to protect their interest by taking more actions to exercise director’s control such as attending the annual general meeting and vote as they wish. As they are the owner of the company, they have the rights to know what the company is intent to do and also the reason shareholders invest, is to share the profit in the company. According to Burns and Minnick (2011), giving