The BBC reports here that David Cameron has pledged to make it more difficult for executives to effectively award themselves disproportionately high pay rises. He has also promised to tackle large payouts for executives dismissed for poor performance.

The latter posses an interesting question as often the reason executives receive large payouts is because that has been contractually agreed, for example by the use of fixed term contracts for several years or long notice periods (even if executives are dismissed for poor performance they are entitled to notice unless they have been grossly negligent or committed an act of gross misconduct). Companies need to protect themselves against doing anything that could lose them contractual protection in the form of confidentiality provisions or restrictive covenants in exectives’ service agreements. If companies breach contracual rights (such as fixed terms or notice), they risk such contractual provisions being unenforceable. It will be interesting to see how David Cameron proposes to deal with that issue otherwise the savings in executive payouts could be lost as a result of damage done to the company when the executive is no longer bound by restrictive covenants and works in competition with the Company.