HL Deb 25 January 2000 vol 608 cc1416-9

2.54 p.m.

Lord Smith of Clifton

asked Her Majesty's Government:

Whether they are satisfied with the response of companies in implementing the recommendations of the combined code issued by the Department of Trade and Industry in July 1999 requiring shareholder involvement in the determination of executive directors' remuneration.

Lord McIntosh of Haringey

My Lords, the Department of Trade and Industry issued a consultative document on directors' remuneration in July last year which set out the Government's proposals for strengthening the current regulatory and best practice frameworks in this area. The consultative document made it clear that the Government are concerned that some quoted companies have failed to comply in full with the spirit of the recommendations made by the Greenbury Group in 1995. The responses to the consultative document have been carefully considered and the Secretary of State expects to announce his conclusions next month.

Lord Smith of Clifton

My Lords, I am grateful to the Minister for his Answer. I am glad to learn that the Secretary of State will make an announcement on this matter. However, only last month the Pensions & Investment Research consultancy showed that about 27 per cent, or 500 companies in this country, were putting directors' remuneration to their shareholders at general meetings. That is a low degree of compliance. I should like further assurance that the Government will take this matter seriously when the Secretary of State makes his announcement next month.

Lord McIntosh of Haringey

My Lords, the figures that the noble Lord mentioned are an improvement on the PriceWaterhouse conclusions of May 1999 which were reported to the House by my noble friend Lord Sainsbury in October last. However, the noble Lord is quite right to say that the position is not satisfactory. I give him the assurance that this is one of the issues that will be addressed when the Secretary of State makes his announcement.

Lord Lea of Crondall

My Lords, given that executive remuneration has been growing by 10 to 15 per cent year on year for many years now, while the remuneration of other people has grown by only 3 to 5 per cent—in other words, the result of this is growing inequality—and given the resulting scepticism when it is suggested that shareholders should blow the whistle, does not my noble friend the Minister agree that there will be a need for Ministers to revisit the basic parameters of public policy when they undertake the review which the Minister mentioned?

Lord McIntosh of Haringey

My Lords, I am not sure what my noble friend means by revisiting the basic parameters of public policy. Certainly the statement which the Secretary of State will make next month will cover all of the issues which were addressed in the consultative document last year. In the end it must be for shareholders to determine remuneration, but it is for government to ensure a framework for remuneration which supports the need for directors to be accountable to shareholders. My noble friend refers to the rise in directors' remuneration over the years at a rate higher than inflation and higher than the rise in remuneration of their employees. Clearly an increase in differentials between directors and employees, except in exceptional circumstances, is not in the best interests of a company or its shareholders.

Lord Mackay of Ardbrecknish

My Lords, before the Government announce their conclusions on the matter of directors' remuneration, will the Minister undertake that the Government will consult with some of his noble friends who have experience of high salaries, share options and golden handshakes? Is he aware that many of them are singularly absent today?

Lord McIntosh of Haringey

My Lords, it has never been my view that socialists have to be bad at their jobs.

Lord Borrie

My Lords, does my noble friend agree that the phrase "shareholder involvement" can have a number of different meanings? It may mean the influence of major institutional shareholders, who, I should have thought, have a lot of "clout" already with the board of the company concerned. Alternatively, it may mean the mass of ordinary shareholders who might number tens of thousands or hundreds of thousands and whose views are difficult to ascertain. It may also mean—this may be the meaning of the phrase in the Question of the noble Lord, Lord Smith—shareholders at general meetings who comprise a self-selecting group who may be there for the refreshments.

Lord McIntosh of Haringey

My Lords, one of the considerations that has been put forward in all seriousness is that if you have a shareholders' vote on directors' remuneration more shareholders will come to meetings and refreshment costs will rise. I do not think that is a very serious consideration. My noble friend is right, there are a number of ways in which accountability of directors to shareholders could be improved. It could be by a shareholders' vote; it could be by new disclosure requirements on remuneration; it could be in the way the listing rules are framed; it could be in the role of independent non-executive directors; or it could be in a strengthening of the combined code. These are all matters that the Secretary of State can address in his Statement.

Lord Marlesford

My Lords, does the Minister agree with the advice of the late J. Peter Grace, who used to tell his most highly paid executives, "I do not have a problem paying you that sort of money; you just have a problem earning it"?

Lord McIntosh of Haringey

My Lords, that sounds like very good advice. Of course there are exceptional people for whom exceptional earnings are appropriate. But far too often we see exceptional earnings being given to mediocre people.

Lord Mackay of Ardbrecknish

My Lords, as we have time, perhaps I may come back on this. I thank the Minister for his answer, with which I absolutely agree. Do I therefore take it that if people do a good job they deserve their high salaries and their share options? I am not quite so sure about the golden handshakes.

Lord McIntosh of Haringey

My Lords, I said to the noble Lord, Lord Marlesford, that there are exceptional people for whom exceptional remuneration—which can include all kinds of considerations other than basic salary—would be appropriate. However, the problem, as I think the noble Lord will recognise, is that in respect of too many people high remuneration is accompanied by mediocre performance.

Earl Ferrers

My Lords, does that apply to Ministers?

Lord McIntosh of Haringey

My Lords, Ministers are not directors. They are certainly not directors of quoted companies They do not come within the scope of the review.