Prime Minister David Cameron. Photo credit: DFID
In his first major interview of 2012, David Cameron has promised the coalition will take measures later this year to limit executives’ pay. Central to the government’s promised crackdown on so-called fat cat pay are plans to give shareholders a binding vote on executive pay. At present, shareholders have a non-binding, or advisory, vote on pay.
Cameron told BBC One’s Andrew Marr Show that there had been a “market failure”, with some bosses getting huge rises despite firms not improving their performances. He also pledged to tackle large payouts for executives dismissed because of poor performance. Cameron said that such “excessive” bonuses made “people’s blood boil.”
An inquiry concluded in November by the High Pay Commission found that the pay of top executives at a number of FTSE companies had risen by more than 4,000% on average in the last 30 years.
The government’s intention to curb excessive executive pay has divided the commentariat; some feel politicians should steer clear of trying to legislate the boardroom, while others have welcomed the tough words and urged the coalition to now follow through with real actions.
Coalition right to attack ‘crony capitalism’? Jackie Ashley of The Guardian said the coalition’s “new crackdown on fat cat pay is very cheering for the left” but urged no-one to get carried away just yet: “Let’s not take the forceful-sounding words from the prime minister at their full face value until we’ve seen the detail of the proposals, and the legislation itself. Post-Blair, the difference between rousing language and actions that really make an impact is well understood in British political culture. Cameron says he’s open to having worker representatives on remuneration committees. Once the corporate bosses get lobbying, I have my doubts.” Regardless, Ashley congratulated Cameron for devoting his “first big salvo of the year to the fairness agenda. This is an indication of how dramatically the country’s political mood is shifting in response to hard times.”
“We can all understand that a few brilliant inventors, entrepreneurs or leaders will reap big personal rewards, but the routine over-payment of FTSE 100 executives (getting an average of more than £2m a year) is something else … The system of corporate pay may be legal – but it is indeed ‘crony capitalism’ when back-scratching non-execs fork out other people’s money for one another, no matter whether the company is doing well or badly”, boomed Jackie Ashley of The Guardian.
Cameron must back words with actions. A leader in The Independent backed Cameron’s tough words and reminded that “the growing disparity between the top 10 per cent and those at the bottom of British society makes a mockery of Chancellor George Osborne’s suggestions that ‘we are all in this together.’” The newspaper urged Cameron to now follow through – “recognising the problem with executive pay and actually doing something about it are two different matters.” “What is required is greater intervention, and at a level which does not sit well with the Conservatives’ ideological predispositions”, insisted the newspaper, which spelled out what it considered would clean up the system: “Votes on directors’ pay at annual general meetings must be binding, not advisory. Something must also be done to fix the ratio of pay between a company’s highest and lowest earners. And staff representatives should be brought on to remuneration committees … such are the kinds of intervention in the market which are required if Britain is to rediscover the checks and balances that allow our economic system to operate more fairly, safely and effectively.”
Politicians should stay out of the boardrooms. A leader in The Daily Telegraph insisted that, “there is a danger that attempts to assuage public concerns about City rewards will end up discouraging enterprise.” The newspaper acknowledged that there is a “disconnection between reward and achievement” but insisted that it’s for the companies themselves not the politicians to get their house in order. The Telegraph suggested there “political reasons for threatening to legislate: Mr Cameron evidently feels he must be seen to understand and sympathise with public resentment at excessive pay and bonuses for top earners when everyone else is feeling the squeeze.” The newspaper warned Cameron off taking on the fat cats to win popularity: “There will almost certainly be unintended consequences and drafting legislation to control boardroom pay is fraught with difficulties. Since it can’t be retrospective, it could mean renegotiating thousands of contracts for employees whose pay will not be what they were promised. Furthermore, who will be covered? Often the highest paid individuals in a company are not the directors but traders and dealers. Are they to be included? There is a danger that Mr Cameron, in trying to assuage public concerns about disproportionate rewards in the City, will end up devising a stultifying regulatory framework that discourages enterprise and wealth creation.”
Tread carefully, Cameron. Bill Emmott of The Times (£) said that cracking down on excessive pay is “fraught with danger for Cameron. He could easily look insincere and ineffectual.” Emmott warned that fairness is a “much easier word to say than to put into practice”, and said the “likely outcome” of “efforts to control executive pay will be abstract and ineffective. Result: having drawn attention to fairness, Mr Cameron will be associated with an unfair outcome, and look insincere. Well, who said politics was fair?”