Plan to curb executive pay 'not enough'


Measures to rein in executive pay announced by Business Secretary Vince Cable do not go far enough, Labour has claimed.

Mr Cable, forced to announce his proposals to MPs, outlined a package which included increased powers for shareholders and greater transparency in remuneration levels.

He urged Labour to support his efforts to achieve "far-reaching and overdue reforms" at the top of some of the UK's biggest firms.

Mr Cable was summoned to the Commons to respond to an urgent question from his Labour shadow Chuka Umunna after the Opposition complained that the Business Secretary was planning to announce his proposals in a speech to a thinktank tomorrow, rather than facing MPs.

Mr Cable set out a package of reforms including:

* Greater transparency "so that what people are paid is clear and easily understood";

* More shareholder powers, including binding votes on pay to hold companies to account;

* More diverse boards and remuneration committees.

Mr Umunna said he welcomed the announcements but they "simply do not go far enough in promoting the transparency, accountability and fairness that people want to see".

He questioned why the Government was not adopting the High Pay Commission's recommendations in full and was not forcing firms to give workers a place on remuneration committees.

Setting out his proposals, Mr Cable told MPs: "The evidence is very clear that business and investors recognise that there is a disconnect between top pay and company performance and that something must be done.

"We cannot continue to see chief executives' pay rising at 13% a year while the performance of companies on the stock exchange languishes well behind.

"We can't accept top pay rising at five-times the rate of average workers' pay as it did last year."

The Liberal Democrat Cabinet minister added that it was not government's role to "micro-manage company pay" but there was a "clear market failure" that needed to be addressed.

While no single proposal was a "magic bullet" the package "can enable a major transformation to get under way".

Tory right-wingers shook their heads as Mr Cable outlined his approach, beginning with the promise of regulations to increase the transparency of company pay reports.

"The Government will require companies to publish more informative remuneration reports on how executives are being rewarded," he said.

The reports will feature proposed future policy on executive pay and a second part setting out how pay policy was implemented in the previous year.

Remuneration committees will be expected to explain what benchmarks were being used and "how they have taken employee earnings, including pay differentials, into account".

Mr Cable said firms would have to explain how they have "consulted and taken into account" their employees' views.

Employees in large UK companies already had the right to request that bosses consult them, but Mr Cable called for that power to be more widely used.

Mr Cable continued: "Shareholders say that too often pay policy appears totally disconnected from the company's overall strategy.

"I want companies to say clearly and succinctly how the pay policy reflects and supports company strategy, how performance will be assessed and how it will translate into rewards under different scenarios."

Companies will have to provide a single figure for total pay for each director and explain how the rewards relate to performance.

A "distribution statement" will outline how pay compares with dividends, investment, taxation and staffing costs.

Mr Cable added: "Shareholders need new powers to hold the board to account. I will consult shortly on specific proposals to reform the current voting arrangements and give shareholders a binding vote, enabling them to exert more pressure on boards.

"This will include a binding vote on future pay policy, including details of how performance will be judged and real numbers on the potential payouts directors could receive.

"Companies will have to include a statement on how they have taken into account shareholder views and the result of previous votes."

Shareholders will also get a binding vote on any director's notice period longer than one year and on exit payments over a year's salary.

Mr Cable said diversity on remuneration panels was "crucial to challenging the status quo" on executive pay.

He said: "I want to see more people being appointed to boards who come from different backgrounds: from the professions, public servants, academics, lawyers, as well as people who have not been directors before.

"I would like to see at least two people on boards who have never been members of previous boards of directors."

From October a provision will require firms to report on their policy on boardroom diversity.

The role of remuneration consultants will be subject to greater transparency.

Mr Cable also said the Government was looking at conflicts of interest in the pay-setting process.

"Within the FTSE 350, around 6% of remuneration committee members are executives in other companies.

"There's a perceived conflict of interest here, as these individuals have a personal interest in maintaining the status quo in pay-setting culture and pay levels."

Mr Cable said the Government was asking the Financial Reporting Council to ensure large firms had a "clawback" mechanism to tackle "payments for failure".

Deborah Hargreaves, who chairs the High Pay Commission, will launch a new project to "monitor the state of pay at the top", Mr Cable added.

Mr Umunna said: "We agree it is right that those who work hard, generate wealth and create jobs for our country are rewarded.

"But excessive pay and rewards for failure are bad for business, the economy and society at large."

The shadow business secretary said it was reported that Mr Cable supported placing employees on remuneration committees but was blocked by David Cameron and Chancellor George Osborne.

Mr Umunna also asked why firms were not being asked to publish pay ratios between top earners and workers.

The Business Secretary responded to Labour's claim that the reforms did not go far enough by criticising the party's record in office.

Mr Cable said that when Labour came to power in 1997 chief executives were paid 47 times the average pay.

"At the end of that period in government it was 120 times. That is the problem we are now trying to correct."

On the question of workers sitting on boards, Mr Cable acknowledged it would be "very desirable" but "there is a specific set of problems around mandating workers on boards" such as where firms had a large number of employees based overseas.

There was also "a lot to be said for pay ratios" but "there is a big difference" between firms which have a lot of unskilled labour and those which outsource that work.


Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooksA special investigation by Andy McSmith
2015 General Election

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Ashdown Group: Technical Presales Consultant - London - £65,000 OTE.

£65000 per annum: Ashdown Group: Technical Presales Engineer - central London ...

Recruitment Genius: Physiotherapist / Sports Therapist

£20000 - £50000 per annum: Recruitment Genius: A Physiotherapist / Sports Ther...

Recruitment Genius: Sales Executive / Advisor

£8 - £9 per hour: Recruitment Genius: Sales Executives / Advisors are required...

Recruitment Genius: Warehouse Operative

£14000 - £15000 per annum: Recruitment Genius: An opportunity has arisen for a...

Day In a Page

Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

Homeless Veterans campaign

Donations hit record-breaking £1m target after huge gift from Lloyds Bank
Flight MH370 a year on: Lost without a trace – but the search goes on

Lost without a trace

But, a year on, the search continues for Flight MH370
Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

Germany's spy HQ springs a leak

Thieves break into new €1.5bn complex... to steal taps
International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

Whirlwind wit of Simone de Beauvoir

Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

Confessions of a planespotter

With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
Russia's gulag museum 'makes no mention' of Stalin's atrocities

Russia's gulag museum

Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

The big fresh food con

Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

Virginia Ironside was my landlady

Tim Willis reveals what it's like to live with an agony aunt on call 24/7
Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

Paris Fashion Week 2015

The wit and wisdom of Manish Arora's exercise in high camp
8 best workout DVDs

8 best workout DVDs

If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

Paul Scholes column

I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

From the Azteca to Vicarage Road with a million followers

Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

Khan ready to meet winner of Mayweather v Pacquiao

The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable