Shareholders to be given power to tackle executive pay, says Vince Cable


The Government today announced moves aimed at tackling the growing
controversy over excessive boardroom pay, with proposals on greater
transparency over pay deals, giving shareholders tougher powers and
creating more diverse boards and remuneration committees.

Business Secretary Vince Cable said there had been a "clear market failure", with top pay increasing by five times as much as the average worker's wages last year.

Unions attacked the Government, saying it had "spectacularly failed" to make any significant changes, including rejecting a plea for workers to be represented on company remuneration committees.

Mr Cable set out the Government's plans a day earlier than expected after Labour tabled an urgent question, leading to the plans being presented in full to MPs.

He said it was not Westminster's job to "micro-manage" companies but insisted there were steps it could take, adding that the Government planned to focus on greater transparency, more shareholder power, board diversity and sharing business best practice.

He warned there was "no magic bullet" for tackling the problem, but stressed: "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."

Under the proposals, what people were paid would be clear and easily understood by shareholders and workers, while voting rules would be changed so investors could challenge their boards more vociferously and hold them to account.

Companies will have to explain how they have taken workers' views into account, while Mr Cable urged greater use of a right to request that larger firms consult them on pay.

The Government is to consult on a series of suggestions, including giving shareholders a binding vote on pay policy.

TUC general secretary Brendan Barber said: "Through its many consultations and speeches, the Government has made a compelling case for radical reform of executive pay.

"It's very disappointing then 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.

"Over-paid and under-performing directors concerned about greater public scrutiny of their pay and bonus arrangements can rest easy tonight.

"Any hopes of reversing the damaging and growing pay divide between top executives and the rest of their workforce have faded after today's announcement."

Unite general secretary Len McCluskey said: "If Vince Cable was really serious about tackling the boardroom abuses, he should have included the legal requirement for an employee representative on the remuneration committees as part of his proposals. Instead, he spoke vaguely about boardroom diversity.

"An employee representative on the board by law would have sent a clear message to the millions of working people, who have seen their living standards slashed by the coalition's callous austerity programme, that ministers are serious about their 'We are all in this together' mantra."

GMB leader Paul Kenny said: "Expecting fund managers, representing shareholders, who themselves are also on the gravy train, to sort this is putting hope before experience. He bottled putting an employee voice on the remuneration committee. Mr Cable has produced a mouse."

Terry Scuoler, chief executive of EEF, the manufacturers' organisation, said: "Employers understand the drive towards greater transparency in executive pay, stronger links to performance and ensuring remuneration committees are independent and strong.

"However, today's proposals risk aiming a large sledgehammer against the wrong nut. Giving shareholders a retrospective binding vote at annual general meetings will prove intrusive but is unlikely to be effective.

"Rather than focussing on the pay of top managers, which are set by global markets, the Government should maintain on its focus on helping employers create well-paid opportunities for the rest of the workforce and ensuring it has skills to fill them."

John Cridland, director general of the CBI, said the proposals were "practical" and would take the heat out of the issue.

"We have been clear that executive pay must always be fair and transparent, and that high pay must be for outstanding, not mediocre, performance. Millions for mediocrity does a disservice to the reputations of hard-working businesses.

"The CBI strongly supports measures to reduce, withhold, or in exceptional circumstances claw back executive pay as it sends a powerful message to future executives. And it is right that remuneration committees should take into account the organisation's broader pay strategy when setting executive pay.

"Not including employees on boards makes sense. Every good company involves its staff in how the business is doing, but boards must be the representatives of business owners."

Prime Minister David Cameron's official spokesman denied that it was an embarrassment for the Government that Mr Cable had been forced to come to the Commons and announce his plans a day earlier than intended.

The Business Secretary was summoned to the Commons by Speaker John Bercow to answer an urgent question from Labour shadow business secretary Chuka Umunna about his plans and face MPs' questions.

Mr Cable had initially planned to launch his proposals in a speech to the Social Market Foundation tomorrow, prompting complaints from Labour that he was ducking parliamentary scrutiny on an important policy initiative.

"We were always planning to make an announcement on executive pay," said the spokesman.

Mr Umunna told MPs: "It is quite extraordinary for ministers to demand greater accountability and transparency from people in business and for ministers to then seek to avoid being held to account for their policies in this area in the House of Commons."

He added: "We (the Labour Party) agree that it is right that those who work hard, generate wealth and create jobs for our country are rewarded, but of course excessive pay and rewards for failure are bad for business, the economy and society at large.

"I welcome much of what the Business Secretary has said but his proposals simply do not go far enough in promoting the transparency, accountability and fairness that people want to see."

The proposals come as the argument against big bonuses heats up, with calls for Royal Bank of Scotland boss Stephen Hester to have his £1 million bonus blocked.

Kayte Lawton of the IPPR think tank said: "Whilst the Government's proposals to tackle excessive top pay are welcome they are unlikely to be successful because they rely on shareholders to hold executives to account.

"Shareholding in the UK has become increasingly fragmented and short-term, making it hard for shareholders to exercise control over company directors. Over 40% of UK shares are held outside the country, and shares are held for an average of just eight months."

Dr Roger Barker of the Institute of Directors said: "Greater simplicity and transparency in the reporting of executive pay is urgently needed. 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 chief executives' pay."

Stuart Fraser, of the City of London Corporation, said: "I strongly believe that the owners of businesses should be entirely responsible for determining pay awards to managers and other staff they employ."

Mr Cable told MPs that 6% of members of remuneration committees were executives at other companies, so they had an inherent interest in promoting a culture of high pay.


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
  • Get to the point
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

Recruitment Genius: Business Development Manager - OTE £40,000

£28000 - £40000 per annum: Recruitment Genius: A fantastic opportunity has ari...

Recruitment Genius: Contracts / Sales Administrator

£19500 - £25000 per annum: Recruitment Genius: Knowledge of and ability to use...

Recruitment Genius: Mobile Engineer - Powered Access

£28000 - £45000 per annum: Recruitment Genius: They pride themselves that they...

Recruitment Genius: Pharmacy Branch Manager

£19000 - £30000 per annum: Recruitment Genius: This pharmacy group are looking...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence