David Cameron voices concern at directors' pay

Sunday 30 October 2011 23:51

David Cameron has called on company boards to act "responsibly" when making pay awards after it emerged directors at the country's top firms have seen their salaries rise by 49% in the past year.

The Prime Minister admitted research out today that revealed bosses at FTSE 100 businesses were now enjoying average earnings of nearly £2.7 million was "concerning".

Deputy Prime Minister Nick Clegg went further, saying it was as if "they're living on another planet" and called it a "slap in the face" for millions of workers on normal incomes who are struggling to make ends meet.

But business leaders hit back, insisting the massive pay and perks packages did not reflect what was happening in the wider private sector and suggested it was down to shareholders to keep a "close watch" on awards.

The study by Incomes Data Services (IDS) showed that directors' 49% increase in remuneration - including salary, benefits and bonuses - was higher than the 43% jump in the pay of chief executives.

It also found average bonus payments for directors increased by 23% from £737,000 in 2010 to £906,000 this year, despite rising unemployment and falling standards of living for most of the population.

The pay of FTSE 100 chief executives rose by 43% in the last financial year to an average of £3.8 million, while finance directors enjoyed a 34% increase to take their average earnings over the £2 million mark, according to the report.

During an official visit to Perth, Australia, Mr Cameron said: "This is a concerning report, particularly at a time when household budgets are very tight and people have difficult circumstances.

"We need all these figures published and known so that we can compare and contrast, so shareholders know what they are paying for.

"We need accountability to strengthen the hands of shareholders so that they feel they are taking responsibility for remuneration in the boardroom. I think that is important.

"But above all there needs to be responsibility. Boards have got to think when they are making pay awards, is this the responsible thing to do?

"Of course you have got to attract the best talent to run the business that you are accountable for as a non-executive director, but is what you are doing responsible?

"Everyone, whether they are in public life, whether they are in private enterprise, they all need to be able to justify the decisions they make about pay.

"So I welcome the debate about this. I welcome the transparency. I want to see proper action and I believe in a responsible society and that is responsibility exercised by everybody including in the board room."

That was echoed by Mr Clegg, who insisted it "can't be right" that some company bosses were given "socking great big pay increases" when their firm's performance had actually plummeted.

"The culture of reward for failure must change," he said.

"I think some of them (pay awards) are incomprehensible and will strike most people as a slap in the face for millions of people who are on normal incomes and struggling to make ends meet.

"Too often there isn't enough accountability. Shareholders don't know what's going on and how these decisions have been arrived at and crucially there isn't a close enough relationship between high pay for people at the top and the performance of the company itself."

Labour leader Ed Miliband said: "People are not against those at the top getting higher rewards if those rewards are earned, if more wealth is created, if more jobs are created.

"But when people are struggling, when the middle is being squeezed, when people are seeing their living standards fall, it is not fair for those at the top to get runaway rewards not related to the wealth they have created."

Research carried out by the Institute of Directors last year found the average pay increase for directors of smaller, unlisted companies, was 2% and 37% of executive directors of those companies actually had a pay freeze.

IoD Director General Simon Walker said: "The IoD will not seek to justify pay increases of nearly 50% for FTSE executives.

"We want to make it very clear that this is not the picture across the rest of the private sector.

"We should not confuse a small number of high-earners with the overwhelming majority of business leaders who are working hard to make their businesses successful, and create jobs, in very challenging times.

"It is crucial that pay is linked to performance. An important aspect of this is that shareholders should keep a close watch on management pay, and challenge where they do not think that executives merit their remuneration.

"In addition, we think it would be beneficial for boards to seek to appoint independent non-executive members with a wide range of professional experience, to provide critical eyes on levels of executive pay."

Madsen Pirie, president of libertarian thinktank the Adam Smith Institute, said: "It is good news that the rewards for Britain's top CEOs have increased substantially on the previous year.

"Although this has been depicted as a pay increase, in fact most of it is made up of performance-related rewards such as shares and share options.

"Only a tiny fraction of it relates to salaries.

"It is good news for Britain that our top executives have been delivering the goods with a substantially improved performance.

"Far from criticising or curtailing these incentives, we should be seeking to make them even more attractive by removing the disincentive of the 50% top income tax band."


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