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
    +5

    Comment number 438.

    This isn’t to do with anything other than the few huge salaries plus bonuses vs many frozen salaries, no bonus, redundancies, living on far less thanks to fuel, food, power prices increases and expected to work longer for less pension. An arrogant nonchalance permeates the better off, promenading their affluence oblivious to anyone struggling. It’s simply not fair.

  • rate this
    +1

    Comment number 437.

    There is a simple way to stop/reduce all of this

    A lot of money (%unkn) comes from our pension funds + which, unless you are a high ranking civil servant are the biggest rip-off ever + the biggest disenfranchisement of the "common man" since the Acts of Enclosure

    Ban pension funds, let us look after our money Then these businessmen will have to convince savvy lenders that they are worth the risk

  • rate this
    0

    Comment number 436.

    411.grumpysleepness
    Culture in Newcastle?

  • rate this
    -1

    Comment number 435.

    @400 Frank Kirton - The shareholders are the OWNERS of the business, not you nor the employees (unless they own shares). Unless you are willing to risk your money by investing in a company then you don't get a say. You might think shareholders only make money but they lose money too. Ask the shareholders of Northern Rock, RBS, Enron, Railtrack, WorldCom, Tyco International, etc.

  • rate this
    +4

    Comment number 434.

    @415
    Seems I left before you.
    I turned the lights out in 2006 at age 53 when my company pulled the plug at our location. CEO's have been and gone since then but taken far more than I could ever wish for - in that short a period too.

  • rate this
    -1

    Comment number 433.

    407.Bibi
    Stopping this pay nonsense is easy. Make it illegal for the highest salaried person in any company to be paid more than 10 times the salary of the lowest paid


    That'll get rid of the problem all right - the UK will be left with the dross.

  • rate this
    +3

    Comment number 432.

    #416
    Shareholders need to vote for senior pay and held accountable for that pay level.
    --------------
    Can you possibly help? I'm trying to establish a correlation between the value of bank shares and the remuneration of senior/investment bankers. It's been a few years since I've plotted graphs but mine aren't making any sense at all!

  • rate this
    +7

    Comment number 431.

    The Execs may move abroad but others will take their place, not like the current ones are doing very well anyway, and what do you think Businesses will just leave a country that they are making billions from? It's a bluff which can be called from one fact, there will always be money to be made in this country, and companies never throw away that sort of money.

  • rate this
    +4

    Comment number 430.

    nieuw divil

    I'm unemployed and from 'oop north' (Stoke-on-Trent . . really annoying nasal accent . . I'll be the first to admit it. . )

    But I am quite attractive and have a larger-than-average member.

    What's your 'redeeming feature ?'

  • rate this
    +6

    Comment number 429.

    it is funny how companies would rather move abroad than increase their profits by curbing the top wage hyper inflation
    they certainly love to outsource other jobs to countries that pay less
    maybe why shareholders do not demand less wasteful exec pay is because they do not care
    many of them are only interested in the asset value
    short term investments that generate much income for the traders

  • rate this
    +4

    Comment number 428.

    Shareholder voting wouldn't be enough. Unless we also tax the *companies* 10x the amount they pay anyone over £150k. That's wake 'em up!

  • rate this
    +3

    Comment number 427.

    Whatever. Forget austerity, it's going be at least a decade before another proper politician comes around.

  • rate this
    +4

    Comment number 426.

    The "ordinary" shareholder is in the minority so the fat cats will always vote themselves the goodies they hold the majority of shares. "It's the rich that gets the pleasure and poor that gets the pain" true today as was in Victorian times when penned. Some here are taken in by DC, neither he or Red Ed have the sightest thought for the majority, they are there to feather their own nest.

  • rate this
    +11

    Comment number 425.

    I waited to see if it would happen.... immigration, single mums, Europe and benefit cheats have all been spewed out on a discussion about execs rediculous pay deals. Can't you sad right wingers tell the truth or have an intelligent debate. The bolly brigade love to attack everyone else but never believe they should take a look at themselves. Limit fat cat pay or link it to company success!

  • rate this
    -1

    Comment number 424.

    If we moved to a 'multiple of the lowest paid employee' arrangement we would see staff paid a lot more...BUT...there would be far fewer of them. And it would encourage staff to campaign for higher salaries for top execs as the staff would end up better off too under the arrangement! Not the socialist utopia that the 'green with envy' lot think they want!

  • rate this
    +6

    Comment number 423.

    Over the past 10 years, executives have presided over a huge destruction of shareholder value. How can they possibly justify the huge increases in executive remuneration? How come they expect their staff to not need increases to incent them but they do? What shareholder return will they commit to for increases? They can't be committed if money is their main measure of success.

  • rate this
    0

    Comment number 422.

    #391 You've not heard of offshoring and disguised remuneration scams then?

    #394
    Not everyone is governed by the greed gene believe it or not.When you say clear thinking.....

    #BTB 383
    So, what you're saying is that the multi millionaire barrister who embraced privatisation, deregulation and PFI is not actually a centrist, (let alone left of centre advocate)...but may in fact be a pseudo tory?

  • rate this
    +1

    Comment number 421.

    The real criminal in all this is the last government. It should have allowed the banks to go to the wall instead of stealing taxpayers money to rescue them. What CEOs are earning is peanuts compared with the theft on a grand scale of the last Labour government. Dave should now be demanding the money back and forcing them into liquidation to repay the taxpayers.

  • 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!

  • rate this
    0

    Comment number 419.

    Monmouth@16
    Understandable Cynicism like understandable gullibility is oxymoronic, or asserting superior view, from education, experience, innate intellect?

    Many unready to TRUST those ahead in study, Left 'Demand more crumbs for Poor', Right 'Call for fairness at Top', Media 'above debate', driving cynicism, fatalism, despair

    Wish NOT to take advantage, in return NOT to be taken advantage of?

 

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