HL Deb 29 January 1998 vol 585 cc323-6

3.15 p.m.

Lord Dormand of Easington asked Her Majesty's Government:

Whether they accept the findings of the TUC report Wider Still and Wider that average highest paid director salary has increased by 53 per cent. for the period 1994–97 and average employee pay by 13 per cent. and, if so, whether the exhortation of the Chancellor of the Exchequer is sufficient to restrain such increases.

The Minister of State, Department of Trade and Industry (Lord Clinton-Davis)

My Lords, the TUC report highlights the need for directors to ensure both that their remuneration is justified by performance and that they are setting an example of restraint. The Hampel report on corporate governance, which was published yesterday, supports the view that directors' remuneration is liable to have an impact both on the company's reputation and on morale within the company. My right honourable friend the President of the Board of Trade has said that she will give her considered response to the report in the spring.

Lord Dormand of Easington

My Lords, I thank my noble friend for that most interesting answer. Is he aware that obscene increases continue to be given to chairmen of companies, chief executives and directors? Does he agree, therefore, that the pleas and exhortations which have been made by the Chancellor of the Exchequer and others are not achieving their purpose? In those circumstances, what thought is being given by the Government to the problem?

Lord Clinton-Davis

My Lords, my noble friend has drawn attention to one aspect of corporate governance which is important. I have already indicated that excessive pay can impact on the company's reputation and on morale within the company. Those are two important components of corporate governance.

My right honourable friend will consider the element to which my noble friend drew attention, and all the aspects that have been set out in the Hampel report. Of course, included in her considerations will be the observations made by the TUC.

Lord Marsh

My Lords, do the Government have any intention of bringing in statutory regulation of wage and salary movements? If not, is it still the case that the responsibility of directors is to act within the law and in the best interests of their shareholders, rather than in response to the exhortations of passing politicians?

Lord Clinton-Davis

My Lords, I know that the noble Lord was a politician, but I do not know what exhortations he made, although I heard him from time to time. Of course we have no intention of introducing a statutory regulation on wages. What is important is that we should have an objective and sensible debate on the whole question of corporate governance. It will take place, I am sure, in the foreseeable future.

Baroness Blatch

My Lords, in order to understand what the Government mean by "being paid excessively", does the noble Lord regard that as applying, for example, to the chairman of a public company who is paid £200,000 when over the trading period the company loses, let us say, £12 million and subsequently goes into receivership? Would that prove to the Government, in their assumption about what is fair or unfair, that the director's salary was at the expense of the shareholders and the workforce?

Lord Clinton-Davis

My Lords, what an extraordinary question. It is based on one hypothesis after another—I believe there were four, but I shall check that tomorrow in Hansard. I shall not go into that range of supposition and speculation which engaged the noble Baroness so eloquently.

Lord Razzall

My Lords, is the Minister prepared to indicate in what way, when we see the Green Paper on Hampel and company law reform, the Government will reconcile their overall support for the Hampel report, as indicated yesterday, with their determination to legislate for another method as set out in their manifesto?

Lord Clinton-Davis

My Lords, again I indicated that all relevant considerations will be taken into account by my right honourable friend in the assessment of the position. She will make her Statement in the spring. I cannot give a specific date at the present time but I am sure that it will be reconciled with whatever it has to be reconciled with.

Lord Pearson of Rannoch

My Lords, does the Minister accept that the average increase of 13 per cent. for employees is in itself satisfactory when viewed against the rate of inflation for the period? Without going into too many hypotheses, does he accept that a number of employees might not have achieved that satisfactory rate of increase had not their highest paid director received an increase of something of the order of magnitude set out on the Order Paper?

Lord Clinton-Davis

My Lords, it is not easy to follow the correlation in the noble Lord's question. What is important is that there has been a tremendous gulf over the course of many years in the pay of employees and directors. That is a relevant consideration and will be taken into account. I shall not say anything more because I do not want to pre-empt my right honourable friend's assessment of the position.

Lord Monkswell

My Lords, surely there is ample evidence that there is no correlation between excessively high pay and performance. We can take that from the period of the last 18 years of Conservative government when the rich got richer but the country as a whole sank in the league tables of world wealth.

Lord Clinton-Davis

My Lords, there is something in that.

Lord Annan

My Lords, the noble Lord rightly said that the Government have no intention of introducing statutory regulations about increases in directors' pay. However, does he not feel that, when something scandalous has taken place, the time has come for the Government to consider how to express some mark of contempt? I say that because, when the noble Lord, Lord Marsh, says that this is a matter about which the shareholders should express their disapprobation, we all know that in the majority of cases the shareholders are the institutions, who are bandits in the same game.

Lord Clinton-Davis

My Lords, there is something in that too.

Lord Gisborough

My Lords, does not the Minister feel that the remuneration of the legal profession and other professions should be taken into account along with that of directors?

Lord Clinton-Davis

My Lords, I had a vested interest in that matter. When we are reflecting on pay we should reflect generally in relation not only to directors but also to the professions. The professions operate in a different way from public and private limited companies; they are partnerships. However, their remuneration reflects generally upon the situation as perceived by the public. The noble Lord is right that it is a factor to be taken into account.