UK Politics

Government executive pay curbs plans announced

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Media captionBusiness Secretary Vince Cable said the proposals would enable a major transformation to get under way

Business Secretary Vince Cable has unveiled plans designed to curb executive pay in a speech to MPs.

Shareholders will be given more powers to block excessive pay packages and companies will be encouraged to increase diversity on their boards.

Firms will also have to justify high salaries in their remuneration reports.

The proposals had been due on Tuesday, but were brought forward following an intervention by Labour, who say they do not go far enough.

Mr Cable said a consultation on the issue had made it clear there was "a disconnect between top pay and company performance".

'No magic bullet'

He said it was "not government's role to micro-manage company pay", but there were steps ministers could take "to address what is a clear market failure".

Measures proposed include:

  • making firms' remuneration reports easier to understand, and requiring them to explain executive salaries in relation to the earnings of other employees
  • increasing transparency by requiring the publication of all directors' salaries
  • giving shareholders a binding vote on executive pay, notice periods and exit packages - at present their say is merely advisory
  • encouraging a wider range of people onto company boards, including academics, lawyers, public servants and those who have never served on a board before
  • requiring all companies to introduce "clawback" policies, allowing them to recoup bonuses in cases where they are later shown to be unwarranted

Mr Cable said government hoped to set "a robust framework", but there was "no magic bullet" to bring about change.

He said progress would depend on shareholders and companies themselves taking more responsibility, but "for the most part" businesses accepted the need for reform.

The government's crackdown on corporate pay was due to be unveiled in a written statement to the House of Commons on Tuesday, ahead of a speech by Mr Cable to the Social Market Foundation in London.

But he made his address on Monday afternoon after Commons Speaker John Bercow granted shadow business secretary Chuka Umunna permission to table an urgent question on pay.

Labour say they acted because the business secretary must not be allowed to "duck" Parliamentary scrutiny of his "half-baked" proposals.

Pay ratios

Following Mr Cable's statement, Mr Umunna said he welcomed much of what had been said, but the government had not gone far enough.

He said his party would ensure lower level employees were given a position on remuneration boards.

"Employees play this type of role in Europe's strongest economy Germany and on the board of one of our most successful businesses John Lewis," he said.

Mr Umunna also said Labour would require firms to publish the ratios between their highest paid employees and the company average.

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Media captionShadow Business Secretary Chuka Umunna said Vince Cable's proposals ''simply do not go far enough''

Mr Cable said he would like to see more employees on boards, but there were problems around mandating their involvement and it could be done in certain companies but not by government "prescription".

He also said pay ratios were "a good idea", but could be misleading - a firm with a large number of low paid workers would compare unfavourably with one which had outsourced all of its low paid work, for example.

The business secretary also faced criticism from a number of MPs.

Labour's Dennis Skinner said "bankers" would still be able to "get away with blue murder", while his colleague Paul Blomfield accused Mr Cable of failing to get to grips with "the cosy closed shop on remuneration committees".

Several Conservative MPs also rubbished the proposals.

Peter Bone called them "Liberal, left-wing claptrap" which would do "nothing to increase growth or employment". Fellow Tory Philip Davies referred to them as "drivel", saying it was Mr Cable's job to support businesses and he should "get off their backs and let them create some wealth".

'Very disappointing'

At an event on Monday in Leeds, Mr Cameron said he also did not believe that placing employees in the boardroom was "the right answer".

"I think the answer is to empower the shareholders, to have much more transparency, to have clear votes on pay packages and, particularly, to make sure people can't get these rewards for failure, where some executives who do not perform well get massive pay-offs," he said.

Dr Roger Barker, from the Institute of Directors, said: "A binding shareholder vote on executive remuneration policy will remind institutional investors of their key governance responsibilities.

"The government is also right to consider ways in which boards of directors can become more diverse - companies must incorporate views beyond those of current and former executives in the setting of CEO pay."

But TUC general secretary Brendan Barber said it was "very disappointing to see that ministers have spectacularly failed to make any significant changes to the status quo".

"Whilst the business secretary has announced a few welcome tinkers to the current boardroom pay regime, he has shied away from the big decisions on all of the major proposed reforms, from worker representation to company pay ratios and open advertising for posts on remuneration committees," he added.

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