Top pay

I will be happy to support changes to company law to give shareholders the full power they need to fix or approve remuneration of directors and senior personnel in companies. I trust it will also give them the power to say “No” to large pay offs to executives leaving because their performance has disappointed. Executives on high pay should be fully answerable to shareholders. There are bad examples in poorly performing companies where pay and pay offs are too high, compounding the difficutlies of the enterprise concerned. Shareholders are the obvious group to provide some leadership and discipline, as it is their money the executives are using. There is nothing wrong with high rewards where the company is doing very well. Complaining about that is just the same old politics of jealousy that gets in the way of a successful enterprise economy.

I also hope the government will look again at what it is doing where it is the shareholder or owner. The best way of showing the private sector the leadership it expects from them would be to come up with sensible remuneration packages and plans for RBS where the government is the shareholder on behalf of taxpayers. I will not begrudge senior people at RBS high bonuses if and when their businesses are back in the private sector, trading profitably, and the taxpayer has got a sensible amount of their money back. In the meantime, making losses or little profit and still dependent on the huge sums the taxpayer has put in, it is difficult to explain why people running this business are paid so much. Sorting out RBS is essential for the greater wellbeing of the economy. It is also the main test of the goverment’s new approach to remuneration.

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73 Comments

  1. matthu
    Posted January 12, 2012 at 6:16 am | Permalink

    One trusts that similar rules will be proposed affecting remuneration and pay offs to senior people working for the various institutions of the EU?

    • APL
      Posted January 12, 2012 at 1:09 pm | Permalink

      matthu: “One trusts that similar rules will be proposed affecting remuneration and pay offs .. ”

      Not to mention the senior ranks of the Local authorities.

      • uanime5
        Posted January 12, 2012 at 3:34 pm | Permalink

        How do you purchase shares in the EU and Local authorities?

      • Andrew Smith
        Posted January 12, 2012 at 10:46 pm | Permalink

        Here here.

        They appear to be over paid, have over paid assistants and deputies and resign when the heat (rarely) gets to high with multi-year pay-offs. It is time employers stopped signing contracts which the employee can pretend allow them pay-offs following failure and employers should challenge any such claim to the highest court.

  2. Robert K
    Posted January 12, 2012 at 7:03 am | Permalink

    I agree with much of this. The government has no business in telling privately owned companies what it should pay its executives – that is down to the shareholders. In the banks where it is the controlling shareholder the government should remove its money from where its mouth is. It would be interesting to see what would happen to the performance of RBS and Lloyds if there was a remuneration cap of, say, GBP 150,000.

    • ian wragg
      Posted January 12, 2012 at 9:32 am | Permalink

      It couldn’t be any worse!

  3. lifelogic
    Posted January 12, 2012 at 7:23 am | Permalink

    Indeed shareholder need a far better, more efficient, say in directors pay. As we have seen with MPs, the BBC and Quangos people, in effect, fixing their own remuneration systems is not ever a good idea. The new system needs to give real control over the packages to shareholders, at the negotiation stage. A sensible structure/system needs to be found and also a way of withdrawing from the existing, often hugely over paid, arrangements. A good structure for this is not easy to find – I hope the system will be thought through properly for a change. Someone with an understanding of negotiation in practice, logic and game theory is needed.

    Businessmen (sorry “people” to keep the absurd BBC/Dimbleby types happy) are not like footballers. They can be replaced by two, three or more people with suitable separation of responsibilities. Often three people (perhaps 90% as good) are far better and far cheaper than the one Sir Fred Goodwin for example. Indeed almost anything would have been cheaper than Sir Fred. In general I tend to think you should be able to fire anyone without risk for no more than perhaps six months pay. If they are any good they will get another job anyway. If they are not it is better that they go for the sake of all the others that work in or own the business.

    • lifelogic
      Posted January 12, 2012 at 8:36 am | Permalink

      Well done to Jack Straw for exposing the racket in whiplash injury claims and referral fees. He could usefully expend his activity into almost the whole of the UK legal litigation system and no pay no fee heads you lose tails you lose legal system. This costs the public so much in extra insurance and transfers it so often to pure fraudsters.

      I also see that Grant Shapps want to criminalise social housing sub-letting. As usual with this government they are tackling the issue from the wrong end. If you give away something for 1/3 of what it is worth you are rather asking for it to be sold on at the true value. The solution is to charge to market value in the first place. People needing help with rents get it anyway and it is grossly unfair to those with similar incomes who are paying market rents and taxes to subsidise social housing or those round the corner.

      That way people will hand the keys back if they no longer need the house/flat and more houses will be available for those in real need and more rents available to enable new houses to be built.

      Why is this not self evident to all those clever people in the government?

      • Mark
        Posted January 12, 2012 at 11:04 am | Permalink

        You are quite right: Shapps is taking the wrong approach to this problem, and I have regularly suggested the market rent approach, with housing benefit only paid to those who need it (perhaps there are some problems with assessing that, but no more than already exist in allocating council properties and housing benefit currently). The advantages would include that there would be no problem if the likes of Frank Dobson choose to live in a Council property, because he would pay a full market rent automatically; subletting of spare rooms would make no real profit (and potentially provide a younger person living in the household to oversee the elderly without having to institutionalise them), and likewise moving out altogether and renting out the property; a fungible market would be created that would not distinguish property by ownership, but rather by its normal market properties of quality and location, so there would be nothing to choose between similar properties owned by the Council, a Housing Association or a private landlord; allocation of households and properties would become much more economically efficient.

        The downside? There would be much less scope for corruption in local housing departments, who are currently e.g. in a position to turn a blind eye to sublets in return for a share of the profits as a bribe. I suspect Shapps thinks it’s easier to jail a few tenants rather than upset these practices. Of course, the fact that subletting is now to be a jailable offence simply opens the scope for demanding larger bribes.

        Reply: I have allowed this comment as it does not accuse any named Council and does not even say Councils do this. However, the general slur requires allegations and evidence to back it up. If you suspect corruption in a Council housing department and have some evidence you should tell the authorities.

      • Mick Anderson
        Posted January 12, 2012 at 11:10 am | Permalink

        Wasn’t Mr Straw part of the Government that made legal this “no win, no fee” prosecution that has effectively made the whiplash fraud situation possible? A bit of humility and awareness of the Law of Unintended Consequences wouldn’t go amiss here.

        I have a nasty feeling that the horse of excessive car insurance costs has not only bolted, but been found, shot and taken to the glue factory. My own car insurance costs went up by 40% at both of the last renewals, with absolutely no change of circumstances.

        For Mr Straw to tell someone to shut the gate that he helped open seems a little disingenous.

        • lifelogic
          Posted January 12, 2012 at 3:01 pm | Permalink

          You are perhaps right but, never the less, he seems now to be at least trying to do something about the mess that was thus created.

        • Nash Point
          Posted January 12, 2012 at 9:28 pm | Permalink

          Your insurance broker has been trying it on with you. I had the same thing happen to me. Go on a comparison website and you’ll probably find a quote much the same as last year’s. When you tell your current insurer, he’ll soon come down in price. I suppose they think that people can’t be bothered to change insurer, and they’ll jack it up, hoping the punter doesn’t notice. It’s capitalism. As long as there’s a real choice, and the consumer keeps his eye on the ball, it works fine.

      • Nick
        Posted January 12, 2012 at 1:13 pm | Permalink

        Correct on social housing.

        Why should Bob Crowe on over 100K a year get subsidised housing?

        As for no win, no fee, we need more of that not less of it.

        We need no win, no fee class actions in particular.

        • lifelogic
          Posted January 12, 2012 at 3:06 pm | Permalink

          Legal action need to be balanced in the mathematical game theory win lose system that gives maximum justice for all and in general discourages legal actions in general.

          At the moment the whole system seems to run as a money making scheme for lawyers with little justice or benefit for anyone else coming from it. This is hardly surprising as, rather like people fixing their own pay, they slowly self fettle the system to work in exactly this way.

        • Bazman
          Posted January 12, 2012 at 6:41 pm | Permalink

          Must be small potatoes compared to the bosses of the railways perks. Crows leadership has given many railway workers a living wage, Which is more than can be said for many of the executives of these private taxpayer subsidised companies. No low pay for them and this cannot be because of their unique talents. Ram it.

        • electro-kevin
          Posted January 12, 2012 at 7:53 pm | Permalink

          You must be joking, Nick.

          No win, no fee is the true culprit in ‘elf ‘n’ safety gone mad.

          It’s ruining everything in this country.

          (Agree about Bob Crowe.)

  4. norman
    Posted January 12, 2012 at 7:33 am | Permalink

    I imagine few of us here have any experience of the types of contracts FTSE 100 bosses sign but is it not the case that a lot of the payoff / bonus structure is written into a contract when someone takes up a new position? It seems difficult for shareholders (who, let’s face it, aren’t me or you with a few thousand pounds of BP shares but pension funds, investment groups, etc. who may not want to be seen causing trouble in case it gives the company a bad name / bad press / loss of confidence and affects the share price) to be able to stop these golden farewells if they were written into a contract to entice that person to move in the first place.

    So from my point of view, admittedly uninformed, the question isn’t what should be done at the back end when someone is sacked / is receiving disproportionately high pay for a poor performance but tighter controls at the front end when any contract is signed.

    I don’t know if there is a practical way for shareholders to get involved in that other than lay down guidelines.

    • Mark
      Posted January 12, 2012 at 11:08 am | Permalink

      We should also remember that not everyone who is pushed out is in the wrong. It’s quite common that dysfunctional management cabals manages to push out others who see what is wrong. Olympus is a recent rather public example.

    • Alan Wheatley
      Posted January 12, 2012 at 11:23 am | Permalink

      If the shareholders are responsible for remuneration, then the remuneration element of employment contracts should have to be authorised by them.

    • sm
      Posted January 12, 2012 at 11:32 am | Permalink

      What about the agency problem?

      http://www.taxresearch.org.uk/Blog/2012/01/09/why-camerons-high-pay-plans-have-not-a-hope-of-working/

      Other ideas floated included a standard contract should be imposed on all listed FTSE directors and significant key personnel.

      Deviation from the contracts could be on a comply or publish,explain and shareholder vote. Indeed this contract could be formulated by stakeholder via the government/pension holders/taxman and the directors.

      Other ideas in the blog or somewhere else were the removal of
      1)limited liability (to the value of earnings taken out in X years prior).
      2)The company tax deduction associated with the high pay possibly just finance.
      3)The removal of tax relief on previous losses built-up where companies are excessively leveraged and have posed a systemic and excessive risk to the taxpayer and lender of last resort. If they have been bailed their tax losses should be anulled and possibly reinstated if they return quickly to the real private sector.

    • Chris Rose
      Posted January 12, 2012 at 12:29 pm | Permalink

      It is the pay offs that I find more reprehensible that the high salaries. If you earn a high salary, of say more than half a million a year, why should should you need any job security at all? Or indeed a pension? Surely, the salary is the security. It is the people on ‘normal’ salaries who need some security whilst they look for another job.

      I don’t see Government interference as way to solve this problem, and so we must rely on discussion and lower income taxes. I would certainly like to see shareholders being far more vigilant about the employment contracts their companies are signing.

  5. JimF
    Posted January 12, 2012 at 7:47 am | Permalink

    “A sensible amount of their money back”!!!!?

    All our money back, please, with interest, before this disaster is shovelled back into the private sector and put into a position where it can go bust again without having to be bailed out.

    Then, and only then, do these executives have any bargaining position in their pay.

  6. electro-kevin
    Posted January 12, 2012 at 8:00 am | Permalink

    The strength of the western economies has been the opportunity for individuals to get rich, but tax now appears to have become optional at a certain level.

    A couple of comments which are easier to cut-and-paste rather than put in my own words:

     Shareholders in a limited company that goes bad are liable for no more than the money they have already paid for their shares – the company’s creditors stand the loss, not the owners of the company, the shareholders or the directors. This is not a right, but a privilege we grant so that people will be ready to invest in new enterprises without fear of taking on unlimited liabilities.

    We don’t have to privilege all companies, directors and shareholders over their creditors in this way – there’s no human right to it. We could instead say that liability is only limited if the highest-paid executive’s remuneration does not exceed, say, 30 times the median employee’s salary. It would be a brave shareholder, individual or institutional, that permitted any executive’s remuneration package to approach the point where they, the shareholders and directors, might be found personally liable if things go wrong.

    • Unless the government passes a simple law that says wages of top executives cannot be higher than X times the wages of the bottom 10%, and bonuses of any kind cannot be more than Y% of company earnings over and above the norm, there is little chance of controlling the obscene wages of executives. Bosses who underperform should also suffer a cut in their usual wages by that same Y%.

    It bothers me that top bosses’ pay gets higher the worse the state of western capitalism gets.

    • electro-kevin
      Posted January 12, 2012 at 10:13 am | Permalink

      There is no reason why ‘Y%’ need not be very generous indeed.

    • Bazman
      Posted January 12, 2012 at 8:45 pm | Permalink

      All chums together as soon as they are pushed from a job for whatever reason they go looking via their cronies for a job working a few days a month paying more than most people earn in ten years. ” What can we get away with and how can we long can we get away with it?” Communism for the rich.

  7. Pete the Bike
    Posted January 12, 2012 at 8:03 am | Permalink

    The last thing the private sector needs is leadership from government. Government is the problem in every sector it meddles in. Big inefficient companies are protected by regulation against competition from leaner fitter new rivals. That allows big business, banks in this case, to set up a closed shop that excludes outsiders so that they can indulge in all sorts of semi legal activity. These directors owe their positions to corporate politicking, not capitalistic enterprise. Remove almost all of the government protection / regulaion for big business and we’ll have a free market which will self correct. All we have now is a state sponsored miss mash of socialism and corporate fascism which simply benefits insiders. The more the state is involved in an industry- banking, education, health, etc the more it needs intensive care.

    • uanime5
      Posted January 12, 2012 at 3:54 pm | Permalink

      Can you name any regulations that protect big inefficient companies or hinder leaner, fitter new rivals? If not why do you think they exist?

  8. lojolondon
    Posted January 12, 2012 at 8:23 am | Permalink

    John, this sounds like a real Labour idea – a good idea in principle, but never workable. The challenge always has been and always will be shareholders getting motivated and organised to deliver a majority vote, interested in how we can run a capitalist democracy and subvert that challenge.

    The law that could and should be passed, however, is that in EVERY part of government, local and central and quasi-government, there should be a law that precludes payment for bad performance, which overrides personal contracts. Disappointing that THIS is a law that could be implemented just as easily as the proposal, it is inside Dave Cameron’s remit, and yet he has passed it over in favour of meddling in the private sector.

    On the subject of RBS, it is a government organisation, salaries for ALL government employees are limited to £100kpa. IF RBS makes billions of profit then the top performers and top management deserve to and should earn millions, that is how we gain and retain top performers.

  9. simon
    Posted January 12, 2012 at 8:51 am | Permalink

    I suppose that, as usual, the public sector will be exempt from this politicing. NHS directors earning fortunes resigning with huge payoffs before moving on to the next unsuspecting health authority to name but one example. To Paraphrase Matthew – “Cameron and parliament would do well to take the log out of the public sector’s eye and then they will see clearly to take the speck out of the eye of the private sector”

  10. Stewart Knight
    Posted January 12, 2012 at 8:59 am | Permalink

    I think the Government is right, but also wrong by omission, in its aims to punish what it, or more correct the public and socialists, sees as excess pay and bonuses.

    Why does the Government not expand this theme? What about footballers who get paid millions a year, plus bonuses and perks? What about the politically active actors and musicians getting various gongs and honours, plus millions upon millions while the criticise policy? Chief executives of councils?

    We could go on, but why bother when this is purely window dressing and populist to avoid being seen as the rich man’s party and get to the punchline before unions and Labour. Let’s use the theme and expand it not just for short term gain.

  11. Caterpillar
    Posted January 12, 2012 at 9:07 am | Permalink

    “give shareholders the full power they need to fix or approve remuneration of directors and senior personnel in companies” – a tough but reasonable ask of shareholders.

    Additionally with a reappreciation of bankruptcy risk and a consequential return to dividend investing then companies may well think more internally about the longterm. Why does this matter? With a longterm focus there may be a return to more middle managers being developed and promoted upwards (OK some commentators might not like the route to efficiency coming from an internal comparative advantage argument rather than an external competitive market for senior execs) but risk is borne by those non-union protected employees that specialise to a non-zero extent … so it is not just the shareholders that hold risk. Some commentators may take the ratio of the highest and lowest paid as a metric, others may (I think rightly) worry about ratios between highest and median pay, perhaps shareholders should consider this ratio … or perhaps middle managers should have more say / join a union?

  12. javelin
    Posted January 12, 2012 at 9:14 am | Permalink

    I think your support will provide a very welcome boost to those seeking fairness and those seeking the market to work. This is an issue I think both sides can agree on. I would not wish to see the left hijack this issue as a means to slap envy tax on FTSE executives.

    A simple rule would be that shareholders WOULD ALWAYS have the option to give each executive a pay rise based on the average growth of profits and share price over the past 3 years. Positive or negative. If an individual executive wishes to argue the case for a bumper pay rise then they can do so on paper in the annual prospectus. This could be voted for very easily and I think would give a figure the shareholders could look at and feel comfortable with.

    • Mark
      Posted January 12, 2012 at 11:34 am | Permalink

      I’m sure you are aware – given your career – of traders in banks who are paid far more than the board members above them. Often large bonuses accrue simply because the trader was fortunate enough to be in a market that allowed gargantuan profits to be recorded, although rather less skill was needed to achieve them. Selling gilts to the Bank of England which wishes to buy them at high prices to support QE and ZIRP must be rather easier than marketing “toxic waste” CDOs, for example.

    • forthurst
      Posted January 12, 2012 at 3:17 pm | Permalink

      “A simple rule would be that shareholders WOULD ALWAYS have the option to give each executive a pay rise based on the average growth of profits and share price over the past 3 years. Positive or negative.”

      Executives should be held responsible for the increase in earings per share over a sensible timescale but not share prices which they are not able to directly influence, but which they are likely to try to influence by wasting management time talking to fund managers instead of getting on with their jobs. Managers should simply focus on running their businesses well.

      There is far too much activity in share trading based on ephemeral movements which are frequently deliberately engineered. The effects of criminal activities of Guinness shareholders in the past is likely being reproduced in a positive or negative sense on a daily basis with impunity. This is bad for companies and bad for those classes of shareholders that are long term holders

      Companies also need to be better protected from takeovers which are likely to damage the economy or may not have a positive effect, eg Cadbury. If the government had not protected Rolls-Royce, would it still be a world leading power systems company with thousands of skilled jobs in the UK?

  13. botogol
    Posted January 12, 2012 at 9:21 am | Permalink

    – large institutional shareholders (the important ones) don’t really care about high executive pay, otherwise they would have intervened already.
    – executives don’t care about transparency. They don’t find it embarassing that the public know how much they earn, in fact they welcome it, it means their friends and rivals know how much they earn without them having to rudely boast about it.
    – transparency likely drives executive pay upwards, as so many firms pursue policies of being in the first or second quartile…

    • A different Simon
      Posted January 12, 2012 at 1:53 pm | Permalink

      Quote “large institutional shareholders (the important ones) don’t really care about high executive pay, otherwise they would have intervened already.”

      Exactly . All the Govt’s bluster is just fodder for the easily pleased and will change nothing . Just like the other parties and previous govt .

      If the Govt really wanted to do anything about it then it would change the rules governing trading of publicly listed companies . Many of those which are ostensibly to “protect” small investors are actually to skew everything in favour of the larger ones . Specifically :-

      – allow a company to carry out a rights issue without having to go down the prohibitively expensive route of produce a full prospectus . As things stand today they are forced to use a cheaper placing so insiders can line their pockets at the expense of small investers .
      – allow AIM shares to be bought in an ISA which opens up access to funding for those companies
      – allow international equity sales in an ISA to be settled in any currency to avoid currency conversion losses .

  14. alan jutson
    Posted January 12, 2012 at 9:26 am | Permalink

    I so agree with this.

    For far too long people at the top have been paying themselves above and beyond what they deserve, given the performance of the businesses they manage.

    No problem with rewarding success as long as it is performance based, but it seems over the last 10 years, reward against perforamne has got out of control in the private sector, and completely and utterly daft in the public sector.

    Clearly if shareholders are going to be given the opportunity to cut or approve salaries of the Executives, then this can only be good news.

    We equally need some controls on Public executives who appear to be troughing it at the moment, not just in salaries, but in pension entitlement and compensation payments, even when sacked for poor performance.

    • A different Simon
      Posted January 12, 2012 at 1:57 pm | Permalink

      Alan ,

      Surely whatever the Govt has planned will make no difference because the big institutional investors do not care about executive remuneration .

      I agree that what happens today is distasteful but legislation will be completely inneffective won’t it ?

  15. Disaffected
    Posted January 12, 2012 at 9:35 am | Permalink

    Perhaps Cameron and Clegg ought to lead by example and fulfil a pledge to clean up politics, perhaps people will then take them seriously. Expenses, second homes, second jobs, lobbying, interest groups and subsidised meals etc. MPs pensions are still different from the public sector after preaching to the public about for the need to change and yet MPs still think they are above the law and require special renumeration. Ridiculous. Some MPs hardly turn up for work or prefer to go on the speech circuit tour. There is no moral authority to preach to anyone until action is taken on the scandal from three years ago.

    Make directors and CEOs personally liable for their actions, that will focus their minds. it is no business of government to interfere with the pay of CEOs, it is quite different for the public sector. Why are MoD civil servants still receiving huge pay packets when it is clear their stupidity has cost the taxpayer a fortune in stupid contracts? Who was sacked over the aircraft carrier contracts? Pickles has not made any in road for pay of local authority CEOs or the subsequent senior managers or director of services who peg their salary to the CEO. I suggest the government concentrate on public services and parliament first.

    Sir Fred walked away with a huge pay packet. Why wasn’t he sacked? If he claimed unlawful dismissal or wrongful dismissal he would have got far less than the sum he obtained for his pension. Was this not overseen by Lord Myers? Is this the sort of action the public can expect from government ie none when it suits?

    • Gary
      Posted January 12, 2012 at 10:36 am | Permalink

      “Sir” Fred ! What a system ! Even if you go to jail you can be a “Sir” with the right contacts.

      Get the govt out of the market and you may have more chance of the market working properly, including determining salaries.

    • Robert Christopher
      Posted January 12, 2012 at 8:38 pm | Permalink

      Gary: “Sir Fred walked away with a huge pay packet. Why wasn’t he sacked?”

      Gordon was in charge, in a manner of speaking!

      Sir Fred’s pension is ‘public sector’.

  16. English Pensioner
    Posted January 12, 2012 at 10:18 am | Permalink

    Unfortunately, giving the job of fixing pay to the shareholders won’t work as the majority of the shares in major companies are not privately owned, but owned by various investment funds, insurance companies and pension funds.
    The top executives of these funds claim that their salaries are fixed my “market forces” and so have a vested interest in pushing up salaries at the top of the companies in which they have investments in order to justify future increases for themselves.
    Such funds often also work against the best interests of the country and small shareholders in other ways, they are not interested in the companies in which they invest, merely what they can make out of it, and are happy to sell the shares to make a quick profit (and make this year’s books look good), rather than considering them as a long term investment. Many well known British companies were sold for that reason, usually abroad, to new owners which have even less interest, with loss of jobs and profits in Britain. Cadbury was the most recent example, with jobs going to Poland.
    In my view, it is the major investment funds which need to be regulated as I feel that they are the real culprits and doing major damage to our companies.

  17. MajorFrustration
    Posted January 12, 2012 at 10:48 am | Permalink

    Accept the point regarding RBS but what about the Civil Service – Bank of England have failed in there managment of inflation yet I suspect the Govenor will walk away with a good final package and a seat in the Lords

  18. Deborah
    Posted January 12, 2012 at 10:50 am | Permalink

    We need similar mechanisms to prevent huge pay-offs to failed senior executives in local authorities.
    Pension top-ups for early retirement ( in their mid-fifities) and so-called “flexible” retirement (where the executive returns to do their job part-time, thus proving that the post was over rated in the first place) are continuing to cost the taxpayer a fortune.
    Something must be done.

  19. David John Wilson
    Posted January 12, 2012 at 10:54 am | Permalink

    The concern is that the majority of shares in most companies are controlled by pension funds and financial institutions. The people who run these are either in similar positions and want to maintain the status quo or simply aren’t interested.

    What needs to be changed are the people who sit on renumeration boards.
    1) By reducing the number of cronies
    2) By including employee representatives
    3) By including shareholder elected representatives.

  20. outsider
    Posted January 12, 2012 at 11:04 am | Permalink

    Another example of gesture politics by a political elite that is 25 years out of touch, I am afraid.
    The pay of directors of Stock Exchange listed companies is only a tiny, visible part of the mega-pay spectrum and the most instances of extremely high pay are for multinationals with an international shareholders’ list or foreign companies that choose to be listed in London.
    Directors of,say, Swiss or US banks would not be affected. Nor would those who run most of big British industry, who are either in boardrooms abroad or decide the pay of their UK directors. When Cadbury is taken over, its directors pay escapes all this prurient focus, a powerful incentive for managers.
    What about all the private financial trading companies, hedge funds, private equity operations, limited partnerships where the big private earnings are made?
    To impose further regulation or political correctness solely on firms quoted on the Stock Exchange merely gives another push to the decline of what was once the key
    method of raising risk capital. Because the stock market is failing from over-regulation, banks are now expected to put up risk capital.
    No-one can reasonably object to shareholders exercising their ownership rights but there are several reasons why this has not curbed pay in the past. As others have pointed out, many of those who speak for big shareholders are very much part of the spiral pay syndrome. The Government, it seems, is just trying to promote the growth of the box-ticking corporate governance industry, which adds to the overheads of funds.
    Private shareholders have no say. And under the various City governance codes, directors are forbidden from representing any particular interest (such as small investors or pensions funds). These codes, welcomed by the Establishment at the time, need to be swept away.
    If you really wanted to curb top pay, your Government could easily do so by having differentially higher rates of corporation tax for companies that pay anyone more than, say £500,000 a year in total salary, bonuses, pension contributions and options ( or preferably a lower CT rate for those that do not). That would create a real tension between the interests of shareholders and managers over pay.
    But you will quickly find objections to that such as driving away multinationals.
    Hence the gesture, which is not really intended to be effective.

  21. lola
    Posted January 12, 2012 at 11:32 am | Permalink

    So, what you are wanting to do is to sort out the crony capitalism promoted by New Labour. Good.

  22. GJ Wyatt
    Posted January 12, 2012 at 12:09 pm | Permalink

    “There is nothing wrong with high rewards where the company is doing very well.” Well, up to a point JR. There seems to be no upper limit. “Rewards commensurate with performance” would be better.

  23. Nick
    Posted January 12, 2012 at 1:10 pm | Permalink

    Lets have constituents vote on MPs pay.

    Ah yes, we can’t have the plebs tell us what to do, we’re the elite and your lords and masters.

    You will do what you are told and be grateful for what we give back to you

  24. Nick
    Posted January 12, 2012 at 1:11 pm | Permalink

    What needs to be changed are the people who sit on renumeration boards.
    1) By reducing the number of cronies
    2) By including employee representatives
    3) By including shareholder elected representatives.

    ============

    Or, very simply, allow people saving in pension schemes to cast their votes, and the pension administrators have to pass those votes on.

  25. Bob
    Posted January 12, 2012 at 2:13 pm | Permalink

    Most shareholders are disenfranchised as a result of the tax system which forces them to hold their shares in ISAs or pension funds.

    If this unfairness were corrected, we might see a soupçon of common sense returning to the world of business.

  26. Peter Davies
    Posted January 12, 2012 at 2:23 pm | Permalink

    This sounds reasonable to me. The intention sounds good but will the implementation back this up in the structures, presumably by having appropriate share holder representation on renumeration boards.

    Can something similar also be done about failed public sector managers?

  27. Antisthenes
    Posted January 12, 2012 at 2:29 pm | Permalink

    Certainly board members pay and perks have expanded out of all proportion and cannot continue. Most of the problem stems from the setting up of remuneration panels and a scratch my back culture developed. As for nationalised banks and executive pay well you have to pay for those who will bring the banks back to profitability so that the taxpayer gets their money back and hopefully more. The right people do not come cheap so being stingy to appear moral may cost much more than is saved.

    • Damien
      Posted January 12, 2012 at 5:09 pm | Permalink

      Is it possible to pass a law that retrospectively changes the bonus arrangements entered into by contract between the director and the company?

      What happens where there are no shareholders. How can I as a taxpayer object to the massive increases awarded under Labour to executives of quangos?

      Reply: Such retrospective laws are not a good idea. When there is proper shareholder power they will be able to approve or modify a bonus arrangement in advance. Where a company has entered into a b onus arrangement which now appears wrong or too generous they need to renegotiate it with the employee.

  28. Pericles
    Posted January 12, 2012 at 2:42 pm | Permalink

    The Prime Minister’s hope that ‘giving shareholders a say in remuneration’ will solve the problem of payment for incompetence shews his inexperience and lack of understanding of business.

    In the companies of most concern here the shareholders – whose voting power bears proportion to their several stock holdings – are largely financial institutions whose directors themselves are part of the same mutual ‘den’.  The man on the Clapham omnibus does not own enough shares to make a difference.

    ΠΞ

  29. uanime5
    Posted January 12, 2012 at 3:49 pm | Permalink

    One of the best ways to curb the pay disparity in companies is to link it to corporate tax. So the greater the difference between the highest and lowest paid workers the more tax the company has to pay.

    So if the income disparity is less than than tenfold the company’s corporate tax is 20%, if the income disparity is tenfold to twentyfold the company’s corporate tax is 25%, if the income disparity is twentyfold to fortyfold the company’s corporate tax is 35%, and if the income disparity is over fortyfold the company’s corporate tax is 45%.

    This will benefit small businesses who have low income disparity, while punishing companies that give their executives huge salaries relative to the pay of other employees.

  30. Derek Emery
    Posted January 12, 2012 at 4:23 pm | Permalink

    Often the main shareholders in big companies are pension funds. They could have already objected effectively to executive pay if they wanted as they represent a large stock of shares. They have not objected in the past so why would they in the future? The small number of private shareholders can and will be ignored. Executive pay levels may offend politicians but they are not shareholders. If government limits on pay are brought in I’m sure they will find ways around the problem. They could always offshore the company as a last resort.

    Reply: There are some examples of institutional shareholders demanding change to remuneration or to personnel at the top of companies.

    • AJC
      Posted January 14, 2012 at 8:39 pm | Permalink

      It will be interesting to see if anything happens at TESCO.

  31. Atlas
    Posted January 12, 2012 at 4:43 pm | Permalink

    John, spot on. Indeed I had not realised just how much shareholders were NOT in charge of their company! I think the important question is how to get the Institutional Shareholders to behave as a private shareholder would with his own money.

  32. Antisthenes
    Posted January 12, 2012 at 5:08 pm | Permalink

    The way we are going being so PC and morally high bound that soon we will have nothing to moan about when it comes to big business. They will all have left for sunnier economic climates where the natives are grateful for the wealth they create.

  33. D K McGregor
    Posted January 12, 2012 at 5:24 pm | Permalink

    Tell your boss ,CMD , to stop yacking and tinkering and get ON with it. We’re all a bit hacked off waiting for something to actually change.

  34. Bazman
    Posted January 12, 2012 at 6:30 pm | Permalink

    Jealousy and high rewards?
    Would that include the workforce who are producing these profits when asking for a share in the form of higher wages or are they just the hired help. If they are then what does this make the executives? Are we supposed to take them seriously when they preach about austerity and loyalty to the company whilst filling their boots using club round of cronies setting each others pay?
    David Cameron to fight crony capitalism? No he is not going to do this. Really he is not. The idea is laughable.

  35. Jon
    Posted January 12, 2012 at 6:37 pm | Permalink

    These large salaries are resident in the FTSE 250, the shareholders are the pension funds, savings and investment companies, effectively a relatively small number of companies working on behalf of millions of investors.

    It could be said that the desire of those millions of investors are not being wholly met by their fund managers they pay. A fund manager should be demanding bonuses are only paid for good performance and returns, after all they want good returns for their funds.

  36. Bazman
    Posted January 12, 2012 at 6:56 pm | Permalink

    Communism for the rich no less. Is Cameron really going to tackle this when he is part of it?
    Obviously it is all chums together at many levels and in many organisati0ns the truth is self evident. If one person where to be the only share holder, the owner. He would set the ‘managers’ wages and if he did not like the wages on offer he could seek alternative employment like everyone else. This idea that they are somehow above society is a corrupt and self reinforcing idea supported by middle apologists who probably work for such organisation and their collusion on this a condition of their job. Oh how they scoff at North Koreans when what we have here is a pyramid of arse kissers each supporting the guy above him and ultimately the shareholders, some miserable pensioners and some the idle rich. The idle rich being the main cronies setting up the pay schemes. Eats itself and the rest including the employees and the taxpayer can ram it in the insider company.

  37. Bazman
    Posted January 12, 2012 at 8:31 pm | Permalink

    In the same vain. I see Antony Woral Thomson celebrity chef and Tory fundraiser has got off with a caution for shoplifting. I wonder how he would do a Tony ‘Tomo’ Thompson get on? Nicolas Robinson, a 23-year-old student, was arrested for stealing water worth £3.50 from Lidl during the London Riots. He was given a 6 month prison sentence.
    The famous chef is also on the preachers panel of the so-called ‘Tory madrasa‘, the Young Britons’ Foundation. The jokes write themselves. The best one was his own in which he said in mitigation that during Christmas he personally flambeed every Christmas pudding in his gastro pub.

  38. zorro
    Posted January 12, 2012 at 11:15 pm | Permalink

    * Hester graduated with a first class honours degree in Philosophy, Politics and Economics (obviously missed his vocation as a politician…)
    * He is paid an annual salary of £1.2 million by RBS
    * He took home £7.7m in bonus and pension payments
    * In December, 2009, the board of RBS, in which the United Kingdom government has an 84% stake, threatened to resign unless they were permitted to pay bonuses of £1.5bn to staff in its investment arm….
    * The matter received heavy criticism because it followed a £850bn taxpayer bailout of the banking sector.

    Perhaps, the best paid civil servant….

    zorro

    • Lynch
      Posted January 13, 2012 at 11:54 am | Permalink

      Many of the 2009 bonuses were based on the writing-back up of the value of illiquid investments that collapsed in value the year before. Material bonuses were paid to some in the equities business on this basis that is now being closed. It is a farce.

  39. Ronnie
    Posted January 13, 2012 at 12:11 am | Permalink

    EU CRISIS SCANDAL: PENSION LIABILITIES OF FRANCE & GERMANY ARE HALF OF EU TOTAL

    EU State pension liabilities at three times gdp.
    UK’s are only 94% of gdp.

    http://hat4uk.wordpress.com/2012/01/12/eu-crisis-scandal-pension-liabilities-of-france-germany-are-half-of-eu-total/

  40. albion
    Posted January 13, 2012 at 10:25 am | Permalink

    I do admire John Redwood’s unshakeable confidence that the government will, at some unspecified time ……, be able to dispose of its ‘investment’ in RBS and Lloyds TSB at a profit.
    Has John been granted access to the books of these once-mighty financial institutions to appear to be so confident in the quality of their assets (still 100% of the entire UK gdp in the case of RBS)?
    If so, perhaps he could reassure us that the recent spate of ‘pre-pack’ deals involving retail chains that have gone into admistration as a result of their over-indebted private equity owners will not result in any losses to either RBS or Lloyds TSB ……

    Reply: NO, I do not think there will be an overall profit, as I have often made clear.

    • albion
      Posted January 13, 2012 at 11:20 am | Permalink

      Thanks for this unambiguous reply.

      Could you however give an indication of what you would consider a ‘sensible amount of money’ bearing in mind that at the current share prices of RBS and Lloyds TSB, the taxpayers ‘investment’ shows a loss exceeding £40bn.

      I would also appreciate if you could give us some insight on the quality of the assets held by these banks.
      As a forced shareholder of those basket cases, I fear that some loans to property developers and private equity firms may not be worth very much.

      Reply: In the case of RBS where the government/taxpayer is the majority shareholder I think the government should negotiate a much lower pay scale for the senior people for the period when they are loss making and in the public sector. It would need to be a negoriation, as you would not wish to lose all the top management at the same time. Lloyds is more difficult as the government only holds a significant minority.

  41. Lynch
    Posted January 13, 2012 at 11:47 am | Permalink

    The great trick that CEOs of public companies, particularly banks, have played is to make it apparently acceptable for them and their employees to receive entrepreneurs’ rewards without taking entrepreneurs’ risks. If a senior employee of a public company fails, the worst that happens is he loses his job. If an entrepreneur fails he often loses the roof over his head.

  42. Iain Gill
    Posted January 13, 2012 at 7:13 pm | Permalink

    wont fix the most corrupt companies which are generally registered in tax havens like mauritius anyways, many a “dodgy company uk ltd” is not actually registered in the uk despite its name and is registered abroad, dont have to register accounts, play many tax games, and no doubt avoid regulations like this

    in my view organisations almost entirely operating in the uk should be forced to register here and play by the rules

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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