Company Directors: Remuneration (Hansard, 9 July 2001)

§ Lord Tebbit
asked Her Majesty's Government:
Whether they intend to legislate to give shareholders the right to fix the remuneration of company directors.

§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)
My Lords, the responsibility for fixing the remuneration of executive directors lies with the remuneration committees of listed companies and the Government have no intention of changing that aspect of corporate governance. However, it is the Government's responsibility to ensure that the corporate governance framework promotes transparency and accountability to shareholders, and we will be taking steps to improve both of them.

§ Lord Tebbit
My Lords, does the Minister believe that the Government lived up to the standards they expect of companies in that, immediately after the voting on polling day, they awarded themselves substantial pay rises? Would it not have been better to announce that proposal before the shareholders voted?

§ Lord Sainsbury of Turville
My Lords, if the noble Lord had listened carefully to my Answer, he may have considered that a simple statement of thanks for giving him some accurate information was the right approach, rather than trying to introduce a totally different subject.

§ Lord Smith of Clifton
My Lords, will the Government honour the undertaking given by Mr Stephen Byers, when he was at the DTI, that he would produce a code of conduct regarding the remuneration packages of directors? Twice in the previous Parliament I asked that question and I was fobbed off with the answer, "Soon". The last time that I asked the Minister was over a year ago. Will the Government please have some care for the preservation of the English language or will they continue to procrastinate, bearing in mind the situation? It is a thorny issue but it is getting out of hand.

§ Lord Sainsbury of Turville
My Lords, consistently the Government have made it clear that they will produce their views on the matter of accountability as soon as the Company Law Review's wider recommendations on the issue have been made. That report is now with the Secretary of State and when she has had time to consider it, she will come forward with government proposals on this key area.

§ Lord Marsh
My Lords, does the Minister agree that the concern about the salaries of senior executives in major companies extends to companies such as football companies and possibly to pop radio stations? Most footballers and popstars receive considerably more than many directors.

§ Lord Sainsbury of Turville
My Lords, the same principle applies to those companies as to others. Essentially, how shareholders want to see their money used is a matter for them.

§ Lord Dubs
My Lords, would my noble friend care to distinguish between remuneration that comes out of the profits of companies and remuneration that has a significant input from taxpayers?

§ Lord Sainsbury of Turville
My Lords, I believe that shareholders should deal with remuneration resulting from company profits, but in a transparent manner and with accountability to shareholders.

§ Baroness O'Cathain
My Lords, how does the Minister expect transparency to be increased? At the moment the transparency required for executive directors, as reported in the annual report and accounts of every company by the remuneration committee in the remuneration report, gives every detail possible. I just wonder what more will be imposed on companies.

§ Lord Sainsbury of Turville
My Lords, as I am sure that the noble Baroness knows, Stephen Byers made a clear statement on this subject. One major step forward would be clearer statements about the performance of a company, as happens in America, and to give effect to what the Greenbury report asked for, which was a clear statement on remuneration policy. As she knows from her careful scrutiny of many company accounts, that is very infrequently carried out.

§ Lord Peyton of Yeovil
My Lords, in applying their minds to this important matter, is it too much to hope that the Government may give some thought to the meaning of the word "bonus" that, of late, has got out of contra? Perhaps they could take the opportunity to make it clear that the word does not always have a big ingredient of merit.

§ Lord Sainsbury of Turville
My Lords, I totally agree with the noble Lord. The prime issue is that there should be a clear link between the performance of a company and an individual director and the remuneration that he or she receives; therefore, where performance is poor or mediocre large bonuses should not be given.

§ Lord Phillips of Sudbury
My Lords, given that there are, by any reckoning, hundreds of people earning packages of £1 million plus a year, how can the Government be indifferent to the impact of that on differentials, particularly as they affect the public services? As they pretend to be concerned about education and teachers, do they believe that such a state of affairs is gravely damaging to the recruitment of teachers and, for example, to the availability of affordable housing for public service workers in London?

§ Lord Sainsbury of Turville
My Lords, the Government are not indifferent to any of these issues, 930 nor to the action that should be taken to deal with them. Ultimately, it is for the shareholders, whose money is involved, to make the judgments through the remuneration committees on what payment should be made.

§ The Earl of Northesk
My Lords, what view do the Government take of directors exercising share options at reduced levels to discount a falling share price?

§ Lord Sainsbury of Turville
My Lords. if there is such an issue—if I understand it at all—any action that is in any way out of line with company law would be a matter for the Financial Services Authority.

§ Lord Watson of Richmond
My Lords, does the Minister consider that the desirable relationship between remuneration and reward exists in the recent case of Railtrack?

§ Lord Sainsbury of Turville
My Lords, again that is a case for the shareholders of Railtrack. In this case, I am delighted that it will be on the agenda for the AGM, where no doubt the shareholders can express their views.

§ Lord Naseby
My Lords, does the Minister recognise that, although we have had Greenbury, Hampel, Turnball and Cadbury, and while there may be codes of conduct, in recent times there have been too many instances, particularly regarding the renegotiating of stock options, that do not find favour with shareholders, with the public and with anybody other than those who benefit directly? If there is to be a review, perhaps that can be one of the first subjects to be examined.

§ Lord Sainsbury of Turville
My Lords, that is the point of the decision that we are to take on the accountability to shareholders. Clearly, on occasions when there is genuine concern by shareholders as to the remuneration practice of a company. the fact that they are not always given the opportunity to make their feelings known at the AGM is not satisfactory. That is exactly the issue that we shall consider when we bring forward the proposals on accountability.