David Prosser: Cable seeks a political windfall from modest attack on executive pay

Outlook: Vince Cable's proposals amount to a pretty timid attack on executive pay levels that he has previously described as outrageous

Click to follow
The Independent Online

For Vince Cable, the issue of executive pay must feel like a golden ticket. Having made his name in opposition with some vituperative attacks on bankers, he has found the world a little more nuanced since making the move into Government – and his reputation has suffered accordingly. What better way to put that right than with some high-profile attacks on fat-cat pay packets for failing executives?

Political opportunism this may be, but one can hardly blame Mr Cable for accepting the gifts thrown his way yesterday by the likes of the CBI and the IoD, which fell straight into the trap by seeming to defend high pay. We heard all the usual responses – businesses need less regulation, not more, companies are competing in a global market for executive talent, we shouldn't politicise pay policy, and so on.

A better response to Mr Cable's speech to the Liberal Democrat conference would be to question what his proposals might achieve. And the disappointing answer for those of us who believe that executive pay inflation has consistently had little or no link to executive performance (never mind the remuneration offered to the workforce as a whole) is: not a lot.

It is not so much that there is anything wrong with Mr Cable's ideas – just that it is difficult to see how they would lead to the sort of culture change of which he talks. Take, for example, his suggestion that shareholder votes on directors' pay ought to be binding rather than advisory – and possibly that remuneration ought to be approved in advance. Well, that's fine in theory. But how many of the advisory votes that have taken place at Britain's top 500 companies over the past year would have vetoed remuneration proposals had they been binding? The answer is just two. In fact, the average vote against company remuneration reports last year was just 5.6 per cent.

What about the idea of giving employees a say on executive pay? Well, there is certainly sense in broadening the membership of the remuneration committee, but it would be a brave employee who told board members they were being over-rewarded, particularly as a minority of one.

As for making the disclosure requirements on executive pay more demanding, it has to be said that the remuneration reports now filed in every company's annual report do provide far more detail than in the past. By all means make companies say more, particularly on how pay relates to performance, but don't expect many shareholders to be shocked by the resulting "revelations".

Mr Cable's suggestions amount, in other words, to a pretty timid attack on what he has in recent weeks described as "outrageous" levels of executive pay. We shall see how they develop during the consultation, but would it be too much to hope that the final regulation goes at least as far as the strictures that have already been imposed on the financial services industry? For example, forcing companies to defer part of pay through share awards that can be clawed back if necessary seems appropriate for all boards, and not just the banks.

In the end, though, if the Business Secretary thinks he can leave it to shareholders to curb the growing income inequality between executives and the rest, he is likely to be disappointed. Sooner or later, he will have to accept or reject the case for caps on pay ratios, for example, as well as other legislation likely to set him against his coalition colleagues. Golden tickets can quickly become hot potatoes.



Why Ocado is still capable of delivering

What is it about Ocado that prompts such hostility in parts of the City? Not only has the online grocer finally made a profit over the past year, it continues to win plaudits for its service, has a strong brand and enormous potential to expand. Just 3 per cent of grocery shopping is currently done online, compared with 10 to 20 per cent in other areas of retail.

Despite all that, Ocado's critics seize on every disappointment from the company as if it is proof of a terminal decline. The prophets of doom were out in force again yesterday as Ocado revealed sales growth figures that were marginally down on the second quarter.

There is no denying Ocado faces challenges. While trying to build a second distribution centre, it has to fix capacity problems at its existing Hatfield warehouse. It faces more competition – from Waitrose, for example, but also from ever-slicker online operations at Sainsbury's and Tesco (and, soon, Morrisons too). Plus it is battling economic headwinds that are tough for all the grocers but especially for Ocado, which is perceived – rightly or not – to be expensive.

Against that, this is a business that boasted first-half sales growth of just over 20 per cent. It is against this yardstick that the 16.9 per cent achieved over the past three months looks like a setback – although rival grocery bosses would give their right arms for figures that looked even half as strong.

Moreover, the company says a good part of the explanation for the slowdown in its growth have been those capacity constraints. It insists the figures will improve again as Hatfield is fixed and, especially, as its second warehouse comes online at the end of 2012 – by which time it is to be hoped that the pressure on household finances might also have eased.

Ocado's IPO last year was overpriced. The float, which priced the company as if it were a hot dot.com stock, rather than a grocery business with a new distribution model, has dogged it ever since.

However, it is one thing to complain that Ocado has been trading at too heady a valuation, or even to argue that it may be some time before that IPO price is revisited, but quite another to write the company off as having no future at all. In fact, there are plenty of reasons to think Ocado's eye-catching delivery vans will be an ever-more common sight in the years ahead.

Comments