Executive pay: Money to burn? Photo credit: lesum via Flickr
Business Secretary Vince Cable has announced plans to curb corporate excess, taking aim at so-called “fat cat pay.” Under the proposals, shareholders would have increased powers over executive pay and bonuses. Cable also set out measures to provide greater transparency and more diverse boards, as well as avoiding conflicts of interest on remuneration committees.
Writing in The Times (£), Miles Costello described Cable’s plans as “the most radical reforms in a decade.” But some commentators have argued that the proposals simply don’t go far enough. Labour Shadow Business Secretary Chuka Umunna insisted that further reforms were needed: “Excessive pay and rewards for failure are bad for business, the economy and society at large”, said Umunna, reported the BBC. By contrast, some critics suggested that executive pay is not a matter for government control.
Government should back off. “Making executive pay the business of government sets a dangerous precedent. It feeds resentment, adds to the pressure for further interference and sends the impression that Britain is not open for business”, said a Telegraph editorial, arguing that the government shouldn’t give in to “populist pressure.” According to the editorial, the answer is not government intervention but free market principles: “Executives should be paid according to the profits they make. The greater the returns, the more the economy benefits – and the more the state receives in tax.”
“We cannot continue to see chief executives’ pay rising at 13% a year while the performance of companies on the stock exchange languishes well behind”, said Cable, reported the BBC.
Give reforms a chance. A Daily Mail editorial expressed scepticism that Cable’s proposed reforms would actually prove effective, but argued that the plans should be given a chance. “With their knee-jerk condemnation, aren’t his critics ignoring the fact that reform is long overdue to a system that offers lavish rewards for failure?” The Mail said that Cable wasn’t actually trying to “micro-manage” companies’ remuneration structures, but was aiming to ensure shareholders had a greater say.
Writing in The Telegraph, Mark Field pointed out that former Royal Bank of Scotland chief executive Sir Fred Goodwin receives a pension of £700,000 per year from the bank. “No one should forget that Sir Fred’s stewardship of RBS was a monumental failure – the worst collapse in this country’s corporate history”, said Field.
Corporate responsibility. “The Government’s reforms will do nothing to prevent outrageous financial rewards continuing to be enjoyed by an elite few unless the owners of big companies begin flexing their muscles”, wrote Mark Kleinman on a Sky News blog. Kleinman said that investors need to take responsibility for outsized bonuses and pay deals.
Government should go further. “The income of corporate executives, which the business secretary Vince Cable has just failed to address, is a form of institutionalised theft, arranged by a kleptocratic class for the benefit of its members”, wrote George Monbiot on The Guardian’s Comment is Free. Monbiot argued that Cable’s plans are “useless” and put forward a more radical proposal: imposing a “maximum wage” of £500,000. “The feeble measures proposed by the government will do nothing to prevent the great pay robbery”, said Monbiot.
