Executive Pay (Hansard, 5 May 1998)

§ Lord Dormand of Easington
asked Her Majesty's Government:
What action they are taking to have the recommendations of the Greenbury and Hampel reports on executive pay implemented.

§ Lord Haskel
My Lords, the President of the Board of Trade indicated in her speech on 4th March, responding to the Hampel report, that the Government preferred corporate governance issues, such as those relating to directors' remuneration, to be implemented either as best practice or by the listing rules of the London Stock Exchange rather than by legislation.

§ Lord Dormand of Easington
My Lords, I appreciate that Answer, but does my noble friend accept that many of the payments made recently to chairmen and directors have reached a degree of obscenity never seen before, particularly when some of the companies concerned have been losing money? Does he further accept that if a Labour Government stand for anything at all, they stand for fairness but that that will be eroded if the present situation continues? Lastly, have the Government considered what might happen if and when the trade unions and others quite understandably take the view that some of those payments are suitable for some people but not for the rest of us?

§ Lord Haskel
My Lords, the Government are certainly concerned about this. Obscene pay awards not only bring the whole system into disrepute but they also fail to have regard to the wider issues of morale and effectiveness in business. That is why the Government support the Greenbury and Hampel recommendation that reports of remuneration committees be voted on each year by shareholders. The Government consider that to be part of best practice. If there is no evidence that companies are adopting best practice, the Government have not ruled out legislative action. The Government's views on fairness will be published shortly in our paper on fairness at work.

§ Lord Avebury
My Lords, ought not the workers, as well as the shareholders, have some say about the remuneration of the bosses? Could not the vote be widened to include them?

§ Lord Haskel
My Lords, in many companies consultation involves everybody. I am sure that there is an element of worker participation in the good practice favoured by the Government.

§ Lord Marsh
My Lords, is not the best way of controlling such matters for the institutional shareholders in particular, when they conclude that a company is not providing the returns which they expect for their investment, to withdraw their support from that company, not for the Government to try to monitor all the wages and incomes in this country?

§ Lord Haskel
My Lords, I am sure that the noble Lord is right in theory but, unfortunately, many institutional shareholders do not vote at annual general meetings so the companies do not know their views. On the point about institutional shareholders withdrawing their support by selling their shares, many institutional shareholders take the view that they should be changing the management of the company rather than selling their investment in the business.

§ Lord Razzall
My Lords, does the Minister agree that one of the fundamental problems is that there is a significant dichotomy between the answer that the Minister has just given and, indeed, the answers which the President of the Board of Trade gave when asked about these issues in other places and the position which the Labour Party took in its manifesto? There is clearly a distinction between whether—dare I say it—the more liberal approach of Greenbury and Hampel should be followed by the Government, as the Minister appears to be suggesting, or whether a far more interventionist approach, as heralded in the Labour Party's manifesto, should be taken. Confusion is arising because the Government cannot make up their minds which of the two approaches to take.

§ Lord Haskel
My Lords, the Government are waiting to see whether companies adopt the approach that I have just stated. If they do not adopt that approach, the Government will take a more interventionist approach, as laid down in the paper on competitiveness and company law which was recently published by my right honourable friend the President of the Board of Trade.

§ Lord McCarthy
My Lords, is it not the case that the critical recommendation in all of these reports—Cadbury, Greenbury and Hampel—is the setting up of a remuneration committee? It is clear from paragraph 4(4) of the Hampel report that it is recommended that remuneration committees should include non-executive directors rather than executive directors. What we do not know—what the latest Hampel report will not tell us and what it says that it cannot tell us—is to what extent there are remuneration committees; to what extent they consist of non-executive rather than executive directors; and how far they have moved away from crude comparisons. Surely it is time that the Government undertook an independent survey to ascertain to what extent those excellent recommendations are being implemented.

§ Lord Haskel
My Lords, the Government are undertaking some surveys. Indeed, a survey has revealed that only three companies have set up independent remuneration committees and that shareholders vote on their reports at the annual general meeting. I agree with my noble friend that it is important that research is carried out into this. Indeed, some organisations which monitor investments on the London Stock Exchange are beginning to carry out such research.

§ Baroness O'Cathain
My Lords, some answers back the Minister said that unless companies publish in their 475 annual reports the reports of their remuneration committees the Government will want to take action. May I assure the Minister that the institutions are pushing the people involved in remuneration committees to publish those reports? Is it not better that that the investing institutions have that role rather than the Government?

§ Lord Haskel
My Lords, if the institutions will carry out that work, it will not be necessary for the Government to use legislation.

§ Lord Wedderburn of Charlton
My Lords, does my noble friend agree that, in the light of work done by the Law Commission and other bodies on the state of our company law, and as corporate governance relates not only to matters of pay but also to the whole structure of directors, shareholders and others, when the Government are considering legislation on this matter they should take a cool and calm look at the state of our company law?

§ Lord Haskel
My Lords, I certainly agree with my noble friend, and the paper published in March by my right honourable friend the President of the Board of Trade incorporates that.

§ Lord Ezra
My Lords, can the Minister indicate the attitude of the Government to the views of the Hampel committee on the role of chairmen and non-executive directors of companies, which appear to be much more relaxed and to go back on what was originally proposed in the Cadbury report?

§ Lord Haskel
My Lords, the Government are broadly in favour of the recommendations of the Hampel committee as regards chairmen and non-executive directors and their independence.

§ Lord Mackay of Ardbrecknish
My Lords, before the Government introduce what would be a wages policy for top salaried people, will the noble Lord invite his noble friends to look at the history of wages policies undertaken by previous governments to see what a marked failure they have been before they proceed with a narrow wages policy designed to catch top earners?

§ Lord Haskel
My Lords, this is not a wages policy but a corporate governance policy.

§ Lord Dormand of Easington
My Lords, my noble friend said at one point that the Government would wait and see how companies reacted to the two reports named in my Question. Can my noble friend give an indication how long the Government will wait? Are they considering a period of six months, 12 months or something of that order?

§ Lord Haskel
My Lords, the Government will wait for as long as is required for consultation to take place on this matter. In addition, other events are taking place. The paper on fairness at work is to be published next month and there is to be a government paper on 476 company law and competitiveness. All of these matters are subject to consultation at the moment. When those consultations have taken place the Government will be able to take a view.