MPs unite over directors' pay

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Conservative and Labour MPs joined forces yesterday to demand immediate action from the Stock Exchange to force companies to disclose the salaries of all their directors.

While MPs could not agree on the extent of controls to be exercised over the "excessive" earnings of directors in privatised industries, they all acknowledged the public anger over recent pay increases.

A majority report from the Commons Employment Committee called for changes to the Companies Act to ensure that all big businesses publish the pay rates of executives. The main report, endorsed by Tory members but rejected by Labour MPs, called for directors' contracts to be limited to 12 months and asserted that approval for longer term arrangements should be sought from shareholders.

The minority report, drawn up by Labour members, sought a far tougher regime in which privatised companies would be banned from granting any further share options - a part of directors' remuneration which can double their pay packets.

Other companies should be made to exercise tighter restrictions on such options including a pounds 50,000 upper limit on the value of shares on which there should be no tax relief.

The Labour MPs' findings, which is bound to have an influence on legislation introduced by a Blair Government, also said that performance of executives should be judged, not only on profitability, but on the satisfaction of customers and the morale of the workforce.

Despite the majority report's tone of relative moderation it called on senior executives of privatised utilities to show "greater sensitivity" in handling pay and redundancy issues.

Remarking that formal regulation of executive pay was neither effective nor desirable, Tory MPs said that "public distaste" of high levels of inequality should be taken into account.

The majority report recommended that disclosure requirements laid down in Stock Exchange rules and recommended by the Cadbury Committee should be incorporated into the Companies Act for large businesses.

Despite doubts about the independence of "remuneration committees" which set directors' pay, there should be no outside presence on the decision- making bodies. Setting pay was a management responsibility.

However, the Tories recommended that shareholders should be given the right to approve any new incentive schemes for the directors of listed companies.

Institutional shareholders should take their position more seriously, the majority report said. They should exercise their voting rights and should seek to influence companies to introduce "best practice".

Harry Greenway, a Tory member of the committee, warned companies that they were operating in the "last chance saloon". Citing the example of Cedric Brown, chief executive of British Gas, he said that people were "disgusted" with enormous salary rises when they took place at the same time as mass redundancies. He said that he would be seeking radical changes in legislation, if the findings of the majority report were ignored by companies.