I’ll end merry go round of bosses’ pay, says David Cameron

Vince Cable, who is due to introduce new measures that the Prime Minister David Cameron supports, but Chuka Umunna, Shadow business secretary, doesn't feel the plans go far enough. Photos: PA/Getty
Vince Cable, who is due to introduce new measures that the Prime Minister David Cameron supports, but Chuka Umunna, Shadow business secretary, doesn't feel the plans go far enough. Photos: PA/Getty
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Shareholders are to be given a vote to rein in spiralling executive pay and bonuses as part of a government blitz on “crony capitalism”, David Cameron has said.

The Prime Minister said he backed the move as part of a package of measures due to be unveiled by Business Secretary Vince Cable.

David Cameron: backing Vince Cable's proposals

David Cameron: backing Vince Cable's proposals

Legislation is likely to be included in the Queen’s Speech this spring, the Tory leader said, to deal with what amounted to a “market failure” of fast-rising pay despite the economic downturn.

However, he questioned the value of measures demanded by Labour such as putting workers on pay boards – saying he wanted to avoid “tokenism”.

Shadow business secretary Chuka Umunna said the ideas proposed by the Prime Minister “fall far short” of the action needed, while the SNP called for big firms to select board members from a wider background to help determine pay.

The Prime Minister said he knew that executives picking up huge cheques even when their companies had failed made “people’s blood boil”.

Chuka Umunna, who doesn't feel Vince Cable's plans are enough

Chuka Umunna, who doesn't feel Vince Cable's plans are enough

“What I think is wrong is pay going up and up and up when it is not commensurate with the success companies are having,” he said.

“Some people are worth £2 million because they have added masses of jobs, masses of investment, masses of growth.

“But excessive growth of payment, unrelated to success, frankly ripping off the shareholder and the customer … is crony capitalism and is wrong.”

Confirming one element of the package, he said: “The absolute key, and I can confirm this, that does need to happen and will happen is clear transparency in terms of the publication in terms of proper pay numbers to really see what people are being paid and then binding shareholder votes so the owners of the company vote on the pay levels and – absolutely key – votes on parts about dismissal packages and payments for failure.

“We have a Queen’s Speech coming up in the spring this year. I don’t want to pre-empt it but it is very likely to include legislation on companies and on banking and things like that, so there is room to make legislative changes if that is necessary.”

The Prime Minister said this would help end the “merry-go-round” of super-rich bosses rubber-stamping each others’ inflated deals.

Labour’s proposals include simplifying remuneration packages into salary and one performance-related element and publishing a league table of how much more bosses earn than employees.

The party also wants an obligation on investors and pension fund managers to disclose how they vote on remuneration packages and a repeat of the bank bonus tax.

Mr Umunna called on the Prime Minister to adopt in full the recommendations of the independent High Pay Commission.

“Although he tries to talk the talk on executive pay, he is refusing to stand up to vested interests,” he said. “If David Cameron is serious about ‘people power’ he should take the more radical step of empowering pensioners and recognise the need to include employees by putting a member of staff on remuneration committees.”

The change was welcomed by union leaders and insurance firm chiefs, but the Confederation of British Industry (CBI) questioned the effectiveness of shareholder votes.

TUC general secretary Brendan Barber said: “It’s great to see all three main political parties finally coming round to policies that the TUC has advocated for a decade.”

SNP Treasury spokesman Stewart Hosie said binding shareholder votes on remuneration packages would be an “encouraging start”.

However, he added: “It will achieve nothing unless accompanied by a full package of measures to reform corporate pay excess.

“The majority of company directors in Scotland run small-to-medium-sized firms on modest salaries. The real disconnect is between employees in many of the larger plcs and their directors, where even when business is bad, senior management have received significant salary increases.

“We have seen in banking how toxic this payment culture can become. It is essential that companies expand their horizons and begin to select real people from a wider range of backgrounds as non-executive directors and to sit on remuneration panels to act as a reality check and bring in some real world advice.

“Any salary increases or bonus payments for executives must be in the long-term interests of the business.”

The Association of British Insurers (ABI), whose members control around 13.5 per cent of investments in the London stock market, said it welcomed the moves.

However, the CBI questioned the effectiveness of binding shareholder votes and said it favoured the increased use of claw-back arrangements allowing bonuses to be recovered if performance is later found to fall short.

CBI director general John Cridland added: “At a time when family and government budgets are under great pressure, it is important that executive pay is seen to be fair.

“Binding shareholder votes would simply be shutting the stable door after the horse has bolted, as shareholders would only be voting after the problem has happened,” he said.

The government has already moved to force chief executives make public a single figure for total pay, including salary, long-term share plans, retirement schemes and other perks.

Mr Cameron’s commitment to votes came as research showed total remuneration of chief executives in 87 of the FTSE 100 companies rose 33 per cent to an average £5.1 million last year – at the same time as the values of their businesses rose 24 per cent.

The IPPR think-tank, which commissioned the figures, said reforms to tackle “excessive” boardroom pay should go beyond “shareholder activism” and include places for members on boards.