Cameron promises powers to limit executives' pay

 

David Cameron: "Big rewards when people fail make people's blood boil"

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David Cameron has promised shareholders a binding vote on executive pay, in an effort to deal with excessive salaries.

The prime minister told the BBC there had been a "market failure", with some bosses getting huge rises despite firms not improving their performances.

He also pledged to tackle large payouts for executives dismissed because of poor performance.

But Labour accused ministers of failing to increase fairness and transparency from boardrooms and the City.

Research from the Institute for Public Policy Research (IPPR) suggests chief executives in 87 of the FTSE 100 companies took home an average of £5.1m in basic pay, bonuses, share incentives and pension contributions in 2010-11.

This represents a year-on-year increase of 33%, while the average increase in company value was 24%, the think tank said.

'Taking money'

And an inquiry concluded in November by the High Pay Commission found that the pay of top executives at a number of FTSE companies had risen by more than 4,000% on average in the last 30 years.

Business Secretary Vince Cable is expected to outlined the government's response later this month.

Mr Cameron told BBC One's Andrew Marr Show that "excessive" bonuses made "people's blood boil", adding: "Government can't tell people what they should be paid but [should act] where you've got a market failure...

Analysis

The people who run the UK's biggest listed companies - those in the FTSE100 index - will tell you their home may be in Britain but their income is very much global. Few of those PLCs earn more than one-third of their annual turnover here. So benchmarking their bosses annual pay package to salaries on this island is comparing tiny apples with giant melons.

But they also know that for the first time in a generation, the political mood has changed. When the leader of a Tory party, which usually believes that the free market should decide almost everything, says that there has been "market failure" in directors' pay, then reform is unavoidable.

But curbing supernormal salaries can happen only if big shareholders, such as large pension funds and banks, change their habit of simply waving through whatever company directors want - irrespective of how damaging that might be to the long term health of their own investments.

Robert Peston: Will shareholders crack down on executive pay?

"Some people are worth £2m [a year] because they've added masses of investment and masses of growth."

Some bosses did not justify their pay and were "taking money from the owners of the companies and from pension-holders and the employees. This is what we will be addressing."

At present, shareholders have a non-binding, or advisory, vote on pay.

The measures under consideration by the coalition are said to include shareholders getting a veto both on pay packages and on deals given to executives who leave jobs in which they have failed.

Mr Cameron promised "clear transparency, in terms of the publication of proper pay reports and binding shareholder votes".

He denied measures would amount to "gimmicks and tokenism", adding that in future "rewards would be linked to success, not failure".

The prime minister hinted that legislation could be announced in the Queen's Speech, which is likely to take place in the spring.

Labour has called for policies on pay and a "more responsible" capitalism.

'Complex'

Shadow business secretary Chuka Umunna said the prime minister was "failing to meet the three tests of greater accountability, transparency and fairness which Labour has set to end the 'something-for-nothing' culture in our boardrooms and the City".

Chuka Umunna: "The PM has fallen far short of what was required today, which is a great disappointment"

He added: "There is no point giving shareholders a vote on executive pay without the greater transparency needed so they can discern the aggregate remuneration executives receive under the complex arrangements currently in place."

John Cridland, director-general of the CBI business group, said: "The CBI wants to see a single figure setting out total pay for senior executives, clear links between levels of pay and performance, and if performance falls short, deferred pay or claw-back arrangements in place, so there are no rewards for failure.

"Government concern on this issue is understandable, but prevention of the problem has to be the answer. Binding shareholder votes would simply be shutting the stable door after the horse has bolted, as shareholders would only be voting after the problem has happened."

And the general secretary of the TUC, Brendan Barber, said the moves would "achieve nothing unless accompanied by a full package of measures to reform corporate pay excess".

Meanwhile, French finance minister Francois Baroin has suggested that an EU-wide tax on financial transactions, including share sales and currency deals, should go ahead.

'Growth agenda'

But Mr Cameron, who fears this would damage the City, said he would veto the proposal, adding: "If the French themselves want to go ahead with a transactions tax in their own country then they should be free to do so.

"We actually have stamp duty on share transactions in Britain and yet we have one of the most competitive and successful financial services markets anywhere.

"But the idea of a new European tax when you are not going to have that tax put in place in other places I don't think is sensible, and so I will block it unless the rest of the world all agreed at the same time that we were all going to have some sort of tax."

The prime minister also promised to work during the year to reduce unemployment, saying the whole government was working to "a growth agenda" for the economy.

And he urged the Scottish National Party government in Edinburgh to hold its proposed referendum on whether to leave the UK "sooner rather than later".

First Minister Alex Salmond has said such a vote will only take place in the second half of the five-year parliamentary term, which began last year.

 

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  • rate this
    -7

    Comment number 711.

    I think most of the people complaining about others being paid too much are simply jealous they don't earn massive amounts themselves. I bet if they did they wouldn't be advocating they themselves were paid less because it would be "the right thing to do".

  • rate this
    +1

    Comment number 698.

    To effect any change, private shareholders need to be given a vote, as most now hold shares electronically and few brokers provide a method of voting to the small share holder. Secondly, it should be one vote per person not per share. That way all votes are equal. Obviously there have to be safe guards against people just buying a single share to sway a vote for wrongful purposes.

  • rate this
    +3

    Comment number 564.

    I don't object CEO's of good working company's getting millions for their good work - look at Google or Apple (very successful). However why should a CEO of a failing company (RBS and Lloyds) get a pay rise and a great bonus, while cutting staff to save costs. If I fail at my job, I lose my Job. Poorly performing CEO's should lose there bonus and their job, without a massive "Golden Goodbye"

  • rate this
    +6

    Comment number 531.

    Perhaps maximum allowable exec pay could be some multiple of the national average. We need a minimum wage and a maximum wage.

  • rate this
    +13

    Comment number 420.

    The anger really isn't about the high pay at the top but instead the horrendously low pay in comparison that those at the bottom receive. People can't afford to go to work on the wages on offer at most entry level public sector and private sector organisations. Rents are high, mortgages are impossible to get, fuel is extortionate, food is expensive. Tax us less and let the people spend!

 

Comments 5 of 9

 

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