David Prosser: Shareholders must tackle excessive boardroom pay – or face political meddling
Thursday 23 June 2011
Outlook Given his Labour links, including a stint in government under Gordon Brown, one might have expected Lord Myners to be more supportive of Ed Miliband's recent intervention in the debate on executive pay. Fortunately, at least for the quality of the discussion, Lord Myners is now free from the shackles of government and no longer feels the need to toe the party line.
The Labour leader, you will recall, said last week that companies should have to publish the ratio between the pay of their most highly rewarded directors and their average workers. It was a very political compromise, designed to give the impression that Mr Miliband shares the popular outrage about out-of-control boardroom pay while sending a message to business leaders that he has no intention of forcing them to do anything about it.
In fact, such was the political adroitness of Mr Miliband's manoeuvre, Vince Cable, the Business Secretary, took a leaf out of his book in a speech to an Association of British Insurers conference yesterday. We saw the same sort of language – "ridiculous levels of remuneration are going unchallenged" – and the same sort ofpolicy response; in Mr Cable's case a review of disclosure requirements on pay and performance.
Lord Myners, speaking at the same conference, sensibly refused to endorse the politicians' suggestions. Instead he has a familiar answer to the problem – that excessive executive pay is a matter for shareholders – and a new idea for turning that answer into a real solution – that companies should have to have shareholders sitting on the nomination committees that appoint their boards.
It's a cute trick. The problem currently is that while shareholders – the large institutional investors that dominate share registers – know they are in theory responsible for holding executives to account, in practice they rarely opt to do their duty (preferring, generally, to sell up if they become disenchanted with the company).
Were we to co-opt shareholders on to the nomination committee and give them responsibility for monitoring the performance of non-executives, they would no longer be able to opt out of their duties as owners. We might at last begin to see the appointment of board directors prepared to stand up for shareholder value on a whole range of issues, including executive pay.
Both companies and investors, both unlikely to welcome an idea that might at last make a difference on excessive remuneration, will no doubt find all sorts of problems with Lord Myners' idea. Which shareholders would bechosen and what if they sold their stakes? What about the dangers of giving some investors access to price-sensitive information? Do institutional investors have the right people to serve in such roles?
All of the potential challenges are surmountable, however. And what both companies and their largest shareholders must realise is that if they do not get to grips with issues such as executive pay, they will sooner or later find the matter taken out of their hands.
Mr Miliband's intervention last week was a cautious and relatively unthreatening opening shot in this argument. The same might be said of Mr Cable's offering yesterday. Still, both men recognise the strength of feeling about the way executive pay has risen so quickly in relation to everyone else's. As the Business Secretary pointed out, the total pay of the directors of Britain's FTSE 100 blue-chip companies last year was 120 times that of the average UK employee, up from 45 times in 1998.
Politicians are not best placed to tackle that inequality and, though they may not say so in public, they do not want to. But they will feel compelled to do something if shareholders fail to act.
- 1 Malaysia Airlines MH17 crash: Pro-Russian rebel 'admits to shooting down plane'
- 2 Louis van Gaal gets tough with Manchester United players, with Darren Fletcher and Luke Shaw berated in public and Phil Jones left looking bemused
- 3 Is Gideon Levy the most hated man in Israel or just the most heroic?
- 4 Peaches Geldof inquest: Tragic final moments of socialite's life reveal she lied to husband about failed heroin tests
- 5 Israel has discovered that it's no longer so easy to get away with murder in the age of social media
Lana Del Rey: 'I have slept with a lot of guys in the industry'
Peaches Geldof cause of death: 'Heroin addict' socialite had taken fatal dose of drug, inquest concludes
Malaysia Airlines MH17 crash: Pro-Russian rebel 'admits to shooting down plane'
Peaches Geldof inquest: Tragic final moments of socialite's life reveal she lied to husband about failed heroin tests
Israel-Gaza conflict: The myth of Hamas’s human shields
Malaysia Airlines flight MH17 crash: 'Nine Britons, 23 Americans and 80 children' feared dead after Boeing passenger jet is 'shot down' near Ukraine-Russia border
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...
£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...
£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...
£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...