HL Deb 25 February 2004 vol 658 cc233-5

3.1 p.m.

Lord Smith of Clifton asked Her Majesty's Government:

What is their policy with regard to excessive executive remuneration packages.

Lord Triesman

My Lords, my right honourable friend the Secretary of State for Trade and Industry made a Written Statement to Parliament about directors' remuneration, performance, contracts and severance earlier today. For the benefit of the House, I heave repeated this and copies have been placed in the Library and in the Printed Paper Office.

My right honourable friend announced that the Department of Trade and Industry will be commissioning an assessment of compliance with the Directors' Remuneration Report Regulations 2002 and changes in remuneration practices during the course of this year's AGM season. If this demonstrates that further changes to the Companies Act are required, the Government will not hesitate to take appropriate action in the context of wider company law reform.

Lord Smith of Clifton

My Lords, the Minister is an expert on remuneration, as a former general secretary of the Association of University Teachers, whose members are striking today in protest against the paltry offer made to them.

Does he not realise that the policy of the DTI on fat-cat pay since 1997 has been one of continued procrastination and that the issue remains a burning one? What hope has the Minister that the scrutiny unit that has just been announced will have British boardrooms quaking in their boots?

Lord Triesman

My Lords, it is most enjoyable to cross swords with a vice chancellor once again and I thank the noble Lord for giving me the opportunity. I am also grateful to the noble Lord, Lord Smith of Clifton, for maintaining the traditions of Lord Dormand of Easington.

I do not accept that there have been real delays. First, a major Statement has been made today by my right honourable friend the Secretary of State covering directors' remuneration, contracts, performance and severance. While accepting that all these matters are for companies and their shareholders, there is a proper analysis of the impact of the 2002 Directors' Remuneration Report Regulations to be made. It takes more than one year—more than one season—to obtain a proper and serious account of that.

Secondly, as they have been in operation for only one year, it was important that the method for assessing whether the second season made the predicted changes was given a fair chance.

Lord Marsh

My Lords, does the Minister agree that over the years many attempts have been made by both parties centrally to control wage earnings and price movements and that they have all failed? Does he further agree that the people best capable of deciding whether payment is excessive are the shareholders who put their money into the company and the board which is legally liable for the running of the company?

Lord Triesman

My Lords, I acknowledge that there have been attempts to control pay and other matters and that in general they have not been successful. As I said in my Answer, this is plainly a matter for companies and their shareholders.

The reason we have regulation, and the reason regulation is so important, is that unquestionably there have been examples where failure has been rewarded disproportionately and success has not always been rewarded as generously. I do not believe that any decent society would tolerate that state of affairs for very long.

Lord Borrie

My Lords, how would the Minister react to a suitable amendment to the Companies Bill, now before this House, whereby all shareholders with a certain minimum holding had a legal responsibility, together with the board, to determine executive remuneration packages so as to ensure a wider responsibility for them?

Lord Triesman

My Lords, unquestionably, there are different arrangements in many companies for dealing with these matters. The regulations are full, initially following the listing principles for listed companies but have been extended in ways which everyone would accept are useful. Those methods and the operations of remuneration committees are now being examined after their first season. As I have suggested, it will be important to see how the second round of AGMs goes.

It is obviously open to any company to make arrangements which would extend consultation. Under the European directive that is likely to be ill force in due course, it may well be that others in companies will be able to express a view.

Lord Lea of Crondall

My Lords, does my noble friend recall that the fallacy contained in the question posed by the noble Lord, Lord Marsh—namely, that market forces create rapidly growing inequality of income—was that these are not market forces but are remuneration committees of joint stock companies which give each other the top percentile of the best performing companies? Trade unions do not do that. Trade unions are now in the market in a way in which companies at the top end are not. That is the matter that needs to be investigated, as was implied in the reply given by the noble Lord, Lord Sainsbury, when this question was last raised by our late lamented friend, Lord Dormand of Easington.

Lord Triesman

My Lords, I agree with my noble friend Lord Lea about the distinction between directors' pay and the pay of most employees. However, what goes to the heart of the Question, and the reason it was put in this way by the noble Lord, Lord Smith of Clifton, and others who have taken part, is the fact that everyone wants to see an effective link between performance and pay—an effective link which ensures that poor performance and failure are not rewarded by excessively high pay. I fear that some remuneration committees appear to be guided not so much by the wisdom of Solomon as by the avarice of the Temple money lenders.

Baroness Miller of Hendon

My Lords, given that the usual answer we receive from the Government Front Bench on this question is that it is for the shareholders of the company to decide, have shareholders been consulted about the new regulations announced today?

Lord Triesman

My Lords, I can confirm that there has been widespread consultation. The reports of the consultation are with the reports of the papers lodged this morning. If it is helpful to the noble Baroness, I can, in a way I could not in answer to a Question, give a more detailed breakdown of the nature of the responses and the spread of them, which I believe are most interesting.