The way Britain’s top executives have been awarding themselves grossly excessive pay increases, at a time when the rest of us are having to contend with falling living standards, has caused such public outrage that the coalition had to promise action on the issue. But when it arrived, by way of a package of proposals from Business Secretary Vince Cable, it proved to be so weak that its biggest supporters included the top executives themselves!
In what the Financial Times described as “the most far-reaching attempt in a decade to rein in soaring executive pay” Cable proposed:
- Greater pay transparency, with a single figure and full explanation for each senior executive’s increase to be given, together with a “distribution statement” showing how spending on executive pay compares with spending on dividends, tax and employee costs.
- A binding vote at AGMs on executive pay policy and payouts to departing executives.
- Increased diversity on boards, with two places to be reserved for people who have not been directors before and companies to consider banning executives of one company from sitting on the remuneration committees of other companies.
- Increased employee engagement, with employees encouraged to ask to be consulted on executive pay and companies having to explain how they have responded.
Calls for companies to put an employee representative on remuneration committees were rejected. Calls for them to publish the ratios between executive pay and employee earnings (currently 102–1 for CEOs in FTSE 100 companies) were also rejected. And the simple expedient of putting a cap on executive pay and bonuses was rejected as well, even though the coalition sees no difficulty in capping pay for public sector workers.
Greater transparency, putting a few new faces on boards and encouraging companies to consult their employees on executive pay are all very well but they will be totally ineffective in moderating such pay. And allowing binding votes at AGMs is unlikely to achieve much either because individual shareholders, who are most likely to oppose executive excess, hold only about 10% of shares. They can easily be outvoted by pension funds (which hold over 12% of shares), insurance companies (13%) and foreign owners (41%) for example. And the executives who control big blocks of shares are unlikely to vote down executive pay deals in case it encourages others to vote down their own pay deals.
So a coalition cabinet made up mainly of multi-millionaires is doing next to nothing to crack down on grossly excessive pay increases for other multi-millionaires. The only surprising thing about this is why anybody should be surprised!
Richard Lynch is a Dudden Hill resident. He is a retired Unite the Union official and currently conducts voluntary work on employment rights for the Brent Community Law Centre. He also acts as an accompanying representative for the GMB union.