The government has acted, sort of, to limit the scope for high salaries and bonuses in the boardrooms of British businesses. That sentence is wrong, of course. It hasn't acted; it only said it would. The action isn't worth acting upon, some of its critics contend. A lot of the boardrooms with the highest pay aren't in Britain anyway, so large and varied are the 100 companies we now see in the FTSE-100 index of leading companies. They call Russia, Chile, South Africa, Australia, Kazakhstan and other places home. Still there is a public clamouring for constraints on pay, and yet the notion of wage controls seems to alien, and the ways around constraints so varied that any obvious "solutions" wouldn't work. So what's a government to do?
Vince Cable, secretary of state for business, innovation and skills, decided to propose legislation that would make the current advisory vote on pay policy a mandatory one. Shareholders, not government, should decide on pay. Remuneration reports would come in two sections, one containing the policy, the other the account of how policy has been implemented the previous year. Cable backed away from demanding disclosure of any ratio of director pay to that of ordinary workers. "A company employing thousands of relatively low-paid, low-skilled shop-workers will inevitably have a much wider pay ratio than a firm that outsources most of its unskilled labour," he said. True. He also avoided an idea much admired by opposition leaders and trade unions that would see workers represented on remuneration committees. A step too far. But he wants to stop people currently serving as executives at other companies from sitting on remuneration committees, and so break the cycle of mutual back-scratching and mutual admiration. But that's not a solution, as only five per cent of RemCo members currently have such posts. Getting more outsider will be the bigger problem. Sitting non-executive directors sometimes call the RemCo assignment a "poisoned chalice".
"Responsible business leaders are waking up to that fact and understand the need to respond to the substantial and growing pressure to deal with the culture of excessive rewards. I stand ready to work with them, and with investors, to thrash out what gold-standard company reporting should look like and then act on it," he said. This is one we'll be working on for quite a while to come.
Source document: The Cable speech to the Social Market Foundation elaborates.
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