Shareholders should police fat cat pay, says Cable

Business secretary Vince Cable is set to put UK plc's boardroom big beasts on a diet, by giving shareholders a binding vote on future pay.

by Andrew Saunders
Last Updated: 06 Nov 2012
Cable’s proposals, rushed out at the insistence of the Speaker of the House of Commons, are ambitious and centre on two key areas: boosting shareholder power and increasing transparency. He’s hoping that by forcing firms to be more upfront about what their directors are paid, and by giving shareholders the power to veto excessive pay deals, he can start to tackle the perceived problem of corporate greed.
 
We can summarise his thought process thus: companies that pay excessively tend to obfuscate the fact because the disclosure rules aren’t strict enough. They do this because they know that shareholders would object if they did come clean. So if companies are forced to be more open and shareholders are given more power to derail the gravy train, all will be well. QED. The sort of thing that happened to departing Cairn Energy boss Bill Gammell, denied a £2.5m extra payout by investor pressure only this morning, in fact.
 
It seems fair enough in many ways, especially as he’s proposing to give shareholders the ability to claw back pay in the event of executive failure. A sound idea in theory although exactly how that will be achieved in practice remains to be seen. It looks suspiciously like a lawyer’s charter to us at MT.
 
Cable also wants to jam shut the rem-com revolving door, where execs have reciprocal agreements to sit on each others remuneration committees. It’s hard to argue that those kind of deals are good practice, but on the other hand their isn’t much real evidence that having a mate on the rem-com actually makes much difference to the size of your package either.
 
He has stopped short, doubtless to sighs of profound relief in the nation’s boardrooms, of recommending that employees should have a say in setting their bosses' pay grade, but does want greater diversity amongst corporate leaders. Apparently this means more ‘civil servants, academics and lawyers'. Angling for a nice sinecure on your retirement, Vince?
 
So much for the fine print. Will it work? Probably not. Shareholders have already been able to voice their unhappiness over pay (albeit in an embarrassing rather than binding way) for a decade. A decade which has seen top pay quadruple while share prices have remained static and the salaries of normal folk have risen by only a few percent.
 
Investors make bad pay police for a couple of important reasons – for a start, the big fund managers have a lot of ground to cover and only really start to take an interest in pay once it’s too late. But perhaps most of all because even the institutions which do have the power to make themselves heard choose not to make too much fuss – they are large plcs themselves for the most part, whose bosses do not wish to have their own pay subject to similar unwelcome scrutiny. Good marks for trying, Vince, but could do better. 

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