Will highly paid investors curb pay of highly paid bosses?


Business Secretary Vince Cable has outlined a number of new measures

To curb the excesses of executive pay, Vince Cable has passed the buck back to shareholders.

Investors will be given the power to formally veto companies' future pay policies - although, as is the case now, if shareholders dislike how businesses have implemented the agreed policy, their votes will not be binding.

And Mr Cable also wants investors (and the rest of us) to have slightly simpler and clearer information about both the size of executives' pay and their incentives (what they are being rewarded for).

Here's the thing. For about 10 years shareholders have had much more influence on pay in the boardroom. This has coincided with a quadrupling in top executives' pay, whereas company share prices as measured by the FTSE100 index have gone nowhere and average earnings for the rest of us have increased just a few percentage points a year.

So will giving shareholders increased authority over executive pay serve as a brake on bosses remuneration, or will this reform just give politicians and the public someone else to curse as and when the chief executive of a mediocre company pockets millions?

Arguably, the top fund managers - those who vote the shares we hold in our pensions or assorted long-term savings schemes - are disincentivised to be too aggressive in limiting corporate pay rises, because they are on the same gravy train.

That is why Mr Cable also wants more "diversity" in the board room - more "lawyers, public servants and academics", according to a briefing from the Business Department - to introduce the views of the wider world into discussions about how and how much an executive should be rewarded.

You tell me if "lawyers, public servants and academics" represent a revolution in the variety of views likely to be represented in the boardroom.

However, Mr Cable has backed away from what Labour wants, which is an obligation to have an employee representative formally involved in executive pay talks.

That said, Mr Cable is urging employees of large companies to request that their businesses consult them on executive pay, by using the provisions of the 2004 Information and Consultation of Employees Regulations (apparently this gives employees the ability to force businesses to seek their views).

There is one respect in which Mr Cable is wielding something of a stick, which is that he wants a prohibition on executives of one company sitting on the remuneration committees of another company: he thinks that high pay is institutionalised by the presence on these remuneration committees of executives with an interest in keeping the pay benchmark as high as possible.

That said, as I pointed out earlier this month, there's no easy mechanism for executives sitting on each others' remuneration committees to boost their respective incomes.

In the round, Mr Cable is saying that excessive pay is an issue for the owners, the shareholders.

And this even applies to the narrow and live case of what kind of bonus should be received by the chief executive of Royal Bank of Scotland where the government has an 81% stake - because Mr Cable said that the decision on this was above his "pay grade" and was a matter for the prime minister (who will probably not be profoundly grateful for Mr Cable's deference on this issue).

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 278.

    re #277
    Like overspent going for pay day loans now, Govt started taking tax up front decades ago. CTax is good example.

    We're never going to get completely away from that because smoothing of flow to Treasury is desirable. But if we move to limited no. of direct taxes, Govt will have to live by its means, take tax after earnings/gains made.

    Good discipline, Comrade!

  • rate this

    Comment number 277.

    To be honest, I think we agree more than we disagree. NO is small fry in the whole scheme.

    I'm curious about the end of cycle tax thing... I'll chase you on it another time.

  • rate this

    Comment number 276.

    Mmm, the tax burden is in wrong quant AND wrong place: on Empls front-end (NI) creates unemploy&adds disproport to tax burden of low/mid workers. Ditto FDuties.

    Would reduce these 2 first as part of comprehensive reform because unemployt&inflation also impact most on low end. Overall aim, simple tax system, tax taken end of cycle, burden borne more by high end but

  • rate this

    Comment number 275.


    To simplify: Low-income workers need subsidies because they aren't paid enough.

    This leads me to the conclusion they should recieve better pay or a lower tax burden.

    It leads you to the conclusion that we should help employers. This is a form of trickle-down, and it never worked.

    Employers must price their goods/services appropriately, not rely on government subsidies.

  • rate this

    Comment number 274.

    One of the effects of indirects is not only are poor & low-to-mid paid, on the whole, disadvantaged to the point where they then need subsidy - winter fuel bills are a good example - so, also, may be Chancellor & Treasury.

    Relying on indirects for the State spend is perilous in the age of Global Warming. GO's inward take from energy tax is already going to be less this winter ...


Comments 5 of 278



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