Directors' Remuneration (Hansard, 8 February 2005)

§ Lord Davies of Oldham
My Lords, the Deloitte report demonstrates the effectiveness of the Government's action in subjecting directors' remuneration to closer scrutiny by shareholders. As a result. the Government do not believe that further legislation in the area is necessary at this stage. However, there remains no room for complacency. The challenge for remuneration committees is to develop packages that effectively link remuneration to the creation of long-term value for shareholders.

§ Lord Smith of Clifton
My Lords, I thank the Minister for that Answer. I am sure that he will recognise—if I can borrow his favourite verb—that it is a rather shallow report. In the attempt to sample investors' opinion, only 24 institutional shareholders—the major ones—were sampled. No attention was paid to individual shareholders or smaller investors, perhaps because the DTI's specification did not include it. Why did it not include it? It is perhaps because it was meant to be a cheap piece of work.
The report reveals that there are poor criteria bearing on the relationship between success and remuneration. Many studies have shown that there is no correlation between performance and reward—indeed, in some cases, there is a negative one. Will the Government take up that vexed question in the near future?

§ Lord Davies of Oldham
My Lords, I note that the noble Lord is critical of the report, but the report has given rise to regulations that are working effectively. All British companies, whatever their size, are complying with the regulations effectively, meaning that there is greater transparency and that we have a better system for ensuring that companies are open about their annual reports than any other country in the advanced world. That is why the Government recognise that some minor improvements to the regulations might be effected. That is why we are open to consultation on that. But the main thrust of the report has been translated into regulations that are proving effective.

§ Lord Barnett
My Lords, does my noble friend agree that what the institutional shareholders said in response to Deloitte indicated that, although they did 661 not want any more regulations, they wanted additions and extensions to existing regulations, to let shareholders, including small shareholders, know just how obscene are some of the salaries paid to some directors of companies that are actually making losses?

§ Lord Davies of Oldham
My Lords, the regulations have meant that the 350 major FTSE companies have given their reports in all openness to shareholders. It is for shareholders to make their judgment on the information provided.
I recognise what my noble friend says: there are areas in which we could make some improvement. However, the broad thrust of the regulations means that, if shareholders wish it, a vote is taken at the shareholder meeting about remuneration packages. We insist on and receive full disclosure about that. As I said, our company regulation is an example to the developed world.

§ Lord Marsh
My Lords, I have a cri de coeur to make on this subject—about which the Government seem almost as enthusiastic as they were about fox hunting. Does the Minister not believe that it is the easiest thing in the world to tell shareholders that, if they do not like what is happening in their company, it is a simple thing to sell those shares and buy some in a company that they like? Nowadays, most companies of any size publish the range of salaries.

§ Lord Davies of Oldham
My Lords, it is certainly the case that companies publish the range of salaries, and, as the noble Lord says, it is open to shareholders to withdraw their investment. However, I think that the noble Lord, with his usual fairness, would also recognise that, at one or two shareholder meetings, the board has been held to account on the level of remuneration for less than satisfactory performance. That is a reflection of the openness that the regulations guarantee.

§ Lord Wedderburn of Charlton
My Lords, does my noble friend accept that the matter was not put squarely before the Company Law Review Group? Would he like to refer the matter to such a group?
Does my noble friend also accept that disclosure is only one of many methods of influencing the direction of events in the company law structure? There are other methods that could be seized on to moderate the rapacious appetites of a group of British citizens who are encouraging increasing inequality in our society. Something like an anti-social behaviour order would be welcome.

§ Lord Davies of Oldham
My Lords, anti-social behaviour orders are certainly outside my brief. With regard to the general points made by my noble friend, there are, of course, areas in which we would want to see company practice improve. However, he will recognise that the crucial way in which power is exercised is access to the relevant information, which we can now guarantee.
662 My noble friend is right. The Government should stay open to consultation on possible changes that could be made to the regulations. As I insist, they are working well, but they could be improved, and we are open to representations on that front.