High Pay – time to call a halt to the executive gravy train

Vince Cable has made announcements this week on Coalition Government proposals to help rein in excessive levels of pay for company directors and senior staff.  It’s an issue that I have raised on many occasions so I’m pleased to see action at last.

As I pointed out in a debate on bankers’ bonuses on Monday, executive pay and bonuses are meant to be the reward for successful stewardship of a company.  The company is owned by the shareholders – which in many cases are the pension funds of millions of people.  If the company has done well, the dividends increase and the share price rises then the shareholders will be happy.  And if that success is down to clear strategic thinking by a director, then a bonus is in order.

But the evidence of the last decade is that while company performance has been modest, executive pay has rocketed.  The big problem is that company boards effectively set their own terms and conditions.  The remuneration committees devise remuneration packages that will have a generous base salary, a bonus entitlement, pension contributions, long notice periods and a host of other benefits from school fees for the children to flash cars with maybe a chauffeur thrown in.  Two issues arise.  These committees are being generous with other people’s money and their membership is all too cosy.

It’s not the job of government to tell any company what it should pay it’s staff, beyond the minimum wage.  But it is the role of government to make sure that companies are properly regulated so that shareholders are protected from greedy or incompetent directors.  So Vince is right to want to open up the remuneration committee memberships and to ban full time directors of other companies from sitting on them.  They have too much of a vested interest in bidding up pay in another company so that their company follows suit.  It’s also right that shareholders and the public get see in much greater detail what is being paid to directors.   It’s time to call a halt to the executive gravy train.

But bankers and directors of other quoted companies are just part of the problem.  Huge rewards can often be received for modest talent in other parts of the private sector and the public sector.  As I pointed out in the aftermath of last August’s riots, people resent the easy rewards for some pretty minor “celebrities”.   And one of the reasons why the country has a budget deficit is the huge increase in pay for public sector senior managers under Gordon Brown.  Yesterday at Treasury Questions I raised this with my colleague Danny Alexander, Chief Secretary to the Treasury.  Here’s the exchange from Hansard:

Stephen Williams (Bristol West) (LD): The Business Secretary’s announcements will give more power to non-exec directors and shareholders to control pay in the private sector. The Government effectively discharge those roles in the public sector, so what measures is my right hon. Friend undertaking to control high pay in the public sector?

Danny Alexander: Ministerial salaries were cut by 5% and then frozen for the whole of this Parliament. As Chief Secretary, I now personally sign off any new pay above £142,000, the equivalent of the Prime Minister’s pay. That is a vital deterrent to the cycle of ever higher pay at the top of the public sector—so much so that in central Government alone the number of people paid more than £150,000 has dropped by 55 since May last year. When applications come in, I can and do reject them if I think they are too high. In fact, since May 2010 83 like-for-like cases have sought my approval. Pay was lowered in 45 of those cases and frozen in a further 23, saving more than £1 million a year for the taxpayer, including a £100,000 cut in the pay for the new chief executive of Royal Mail.