Cable acts to bolster investors’ hand over chiefs’ pay

His proposed reforms will force companies to have binding votes on directors’ pay plans every three years, or annually if changes are made.

For the first time, this vote will be legally binding – meaning that investors can overthrow pay proposals and that companies will not be able to make payments outside its scope.

The move represents a climbdown on previous aims to hold compulsory votes on pay annually, but will vastly improve current rules in which shareholder votes are advisory and can be ignored by companies.

Mr Cable has also stuck by plans to insist firms provide one single figure for total annual pay in order to make remuneration more transparent.

He said the package of reforms will “strengthen the hand of shareholders to challenge excessive pay whilst not imposing unnecessary regulatory burdens”.

He said on announcing the reforms that ever-increasing pay packets had become “irrational and damaging” in the years leading up to the financial crisis.

“Top pay got out of control, most obviously in the banking sector, but also elsewhere in corporate Britain.”

“It was irrational and damaging and it was necessary that shareholders should have the confidence to act,” he added.

The moves come amid growing shareholder activism over executive pay, as shown by last week’s rejection of WPP’s remuneration report which included a £6.8m pay deal for chief executive Sir Martin Sorrell.

The so-called shareholder spring has seen investors become more effective at exerting pressure on companies, with Aviva’s Andrew Moss the highest-profile boss to have been ousted in recent months.

Otto Thoresen, director general of the Association of British Insurers, hailed Mr Cable’s proposals as “practical, workable and should help tackle excessive pay”.

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