Directors’ Excessive Pay and Shareholder Derivative Action

Abstract

Directors’ pay emerged as a contentious issue in the UK in the early 1990s, beginning with the privatisation of some utility companies. The directors of privatised utility companies (e.g. Mr Brown, the then CEO of British Gas Plc)1 saw pay rises that were not justified on individual or company performance. Since then executive pay has continued to be a contentious issue in the UK, attracting the attention of the public, media2 and policy-makers.3 The criticism of directors’ pay is based on the lack of link between directors’ pay and company performance,4 and the widening pay gap between directors’ pay and that of rank and file employees.5 This article will consider the position of the law on directors’ remuneration and whether it is enough to curb excessive remuneration. This article will be divided into three sections. First, the regulation on directors’ pay will be examined. Secondly, shareholders’ ability to curb directors’ excessive pay will be discussed. Lastly, the shareholders’ derivative claim will be discussed in relation to directors’ excessive pay