HL Deb 10 July 2003 vol 651 cc475-7

3.19 p.m.

Lord Dormand of Easington asked Her Majesty's Government:

What progress they have made with their proposals to deal with excessive awards to company chairmen and directors.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, in August 2002, the Government introduced the Directors' Remuneration Report Regulations, which give shareholders of quoted companies a vote on the directors' remuneration report. These regulations need to be given time to demonstrate their full effect. The options presented in the Department of Trade and Industry's document "Directors' Remuneration—Contracts Performance and Severance", published on 3rd June, are currently the subject of consultation, which closes on 30th September. Any further government action on this issue will be considered in the light of the responses to the consultation

Lord Dormand of Easington

My Lords, I thank my noble friend for that reply. Is he aware that in recent months there has been a noticeable increase in the number and type of payments and perks in this field? My noble friend mentioned consultation. If I am correct, we have now been consulting for at least two, possibly three years. Can he say, or hazard a guess on, when the Government might come to a decision? Will that be by the end of this year?

Lord Sainsbury of Turville

My Lords, we have not only been consulting, we have taken action. As I said in my Answer, we have produced the Directors' Remuneration Report Regulations 2002. We need to see what effect those will have. We are now consulting on a new set of proposals. There is no point in consulting unless one waits to the end of the consultation before taking action.

Lord Lea of Crondall

My Lords, does my noble friend the Minister recognise that many of us are encouraged by the persistent way in which my noble friend Lord Dormand presses this question? We need to see a consideration of the extraordinary and persistent growth in the ratio of top pay to average pay. It is now 100:1 in major public limited companies; that is, £20,000 to £2 million. Will he take note of the fact that this is not a free market, as would apply to David Beckham and other footballers? It would be better described in some respects as a rigged market in so far as self-serving remuneration committees are all chasing the upper quartile, as independent studies have demonstrated.

Lord Sainsbury of Turville

My Lords. I am aware of and greatly admire the persistence of my noble friend Lord Dormand, on this question. Hardly a month passes without us returning to this question. He is right to do so, because the issue is serious. The only question in dispute is over the best way to tackle it. We continue to think that the best way to tackle it is by giving more opportunities to shareholders to make their voices heard. That is the correct way. It is significant that we have seen spectacular revolts by shareholders when they felt that a company's position was being abused. We would like to see that continue.

Lord Razzall

My Lords, given that the Minister has answered the identical question asked about three weeks ago in this House by another of his noble friends, and given that his answer has for certain an outstanding merit for consistency—because he has given the same answer—would he be prepared to answer a slightly wider question that is germane? When will the final decisions on the implementation of the Higgs report be put into place, because that report will be germane to this issue?

Lord Sainsbury of Turville

My Lords, there is a series of issues which relate to the Higgs report. Many of them depend on the various bodies that are concerned with practice in this area. I cannot give a specific date on when they will be implemented.

Baroness Miller of Hendon

My Lords, given that the Minister has indicated that the Government have already given the power to shareholders to have a say on remuneration, particularly by voting at meetings, will he go a step further and state the Government's view on the huge remuneration in nationalised industries where, after all, the Government are the shareholder? Would he answer that with reference to the former directors of Railtrack?

Lord Sainsbury of Turville

My Lords, there is always a clear issue of difficulty here, which is that if one is going to have public services which require considerable management skills, in order to obtain people to run those corporations one is required to pay them at least a salary in some proportion to the pay of other people. It is not a sensible strategy to have second rate managers because they are not paid enough.

Lord Faulkner of Worcester

My Lords, does my noble friend agree with the comments of the Deputy Prime Minister, addressing the Local Government Association on 4th July, when he drew attention to the large increase in the salaries earned by chief executives of certain local authorities? He pointed out that they were now earning more than the Prime Minister. Does the Minister agree with Mr Prescott's view that this is having a deleterious effect on wage bills in local government generally and that it is time that proper criteria were established?

Lord Sainsbury of Turville

My Lords, I can only say that I have always felt that the Prime Minister was underpaid.

Lord Tebbit

My Lords, will the noble Lord take time to circulate to all the chairmen of remuneration committees of public companies his reply concerning the need to pay market salaries to achieve an appropriate quality of management? That would save them having to write it out themselves before the AGM.

Lord Sainsbury of Turville

My Lords, I am not certain that I understand the noble Lord's question. It is always difficult to know in exactly what direction its underhand nature is. Clearly, there is a problem, alluded to by my noble friend, of a constant chasing of every company that says it has to be in the top quartile. The combination of that and remuneration experts who are constantly talking up salaries provoke a difficult situation which will be resolved only when shareholders stand up and say that this nonsense has to stop.

Lord Dubs

My Lords, is my noble friend really convinced that there is a direct relationship between the quality of management and the salary that is paid? Surely it is not as direct as that? If it were, what about this House, which is unpaid?

Lord Sainsbury of Turville

My Lords, as an unpaid Minister, I am not certain that I can make any comment. I do not believe that there is a direct correlation. There is a correlation where, if one pays significantly less than the market, one will probably get second-rate managers.

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