Wilf Stevenson writes about the Business Secretary's recent climb down over directors' pay
Over the last decade, directors’ pay in the UK’s largest listed companies has quadrupled, with no clear link to company performance. Business leaders and investors now agree that this is a problem.
In the so called “Shareholders Spring”, shareholders have been flexing their muscles, and exercising their current rights – restricted though they are – to considerable effect. Two FTSE 100 CEOs have had their remuneration packages changed, and one has resigned.
This new shareholder activism is very welcome. Change and reform must be shareholder led – it is they who own our businesses – and parliamentarians should do what we can to empower and encourage them as much as possible.
That is why Labour felt strongly that the recent statement by the Business Secretary Vince Cable represented something of a u-turn. Having spent most of the spring talking up what they were intending to do in this area, in the event they failed to deliver on three crucial areas.
In March, BIS announced a public consultation on proposals that were said to be aimed at giving shareholders “greater influence on the issue of executive remuneration”. Among the measures proposed was the idea that employees should be involved on remuneration committees. But the main plank of this policy was to be an annual binding vote by shareholders (at the AGM) on what the remuneration committee was recommending for directors’ pay – with more than just a simple majority required.
Dominic Rossi, the Chief Investment Officer of Fidelity World Wide Investors, has said that such a threshold would ensure companies consult widely with shareholders prior to a vote, that it would give companies a clear mandate and that the need for a clear majority would also encourage all shareholders to express their views. Why did Ministers not take heed of this advice? In Mr Cable’s statement, his earlier fine words had been watered down to a vote every three years, with only a simple majority needed for their proposals to pass.
As if that wasn’t enough of a climb down, on the question of whether employees should be on remuneration committees, the statement recognised that employee views on pay are “important” but ducked the policy implications, limply requiring companies to “report on whether they have taken steps to seek the views of the workforce”!
This is not the last chance we will have to discuss these topics. We look forward to putting down amendments to the forthcoming Enterprise and Regulatory Reform Bill which will reach the Lords in the autumn. Then we will see how far we can push the government to give shareholders the sort of real powers they need to stamp out excessive directors pay. And we will also push to give all employees a say on pay levels. They are, after all, important stakeholders too.
Lord Wilf Stevenson of Balmacara is a member of Labour’s Shadow Business team in the Lords