Lib Dems back High Pay Commission’s proposals to curb excessive executive salaries

The High Pay Commission, an independent inquiry into top pay in the private sector, published its final report yesterday. Here’s how The Guardian reports its key conclusions:

The commission sets out 12 recommendations to tackle high pay. The main reforms include:

• Greater transparency in the calculation of executive pay to end the “closed shop” on pay decisions. At present, many people do not understand until it is too late how a vast salary – often composed of as many as seven different elements – is worked out.
• Putting employees on remuneration committees, a move included in the government’s own consultation remit.
• Publishing the top 10 executive pay packages outside the boardroom.
• Forcing companies to publish a pay ratio between the highest paid executive and the company median.
• Requiring companies to reveal total pay earned by the boardroom members.
• Establishing a new national body to monitor high pay.

The paper reports that Lib Dem business secretary Vince Cable is likely to be very sympathetic to the Commission’s proposed reforms, having met with them several times: ‘a Lib Dem source said they had worked closely with the commission, were unsurprised by its recommendations and would be taking action. “Put it this way, this report is not going to be kicked into the long grass,” the source said.’

One of the members of the High Pay Commission was Lord (Dick) Newby, Co-Chair of the Liberal Democrat Parliamentary Treasury Committee, and he has issued an unambiguous statement of support:

“The excessive rises in executive pay are clearly unfair. They bear little or no relation to improvements in long-term company performance. This is particularly corrosive at a time when millions of workers are feeling the pinch.

“This report underlines the urgency of the work that Lib Dem Business Secretary Vince Cable is doing to bring rewards back into line with performance.

“As a Liberal Democrat, my overriding priority is to stop top pay spiralling to ever higher levels and to reduce the often obscene differential between top pay and the salaries of the vast majority of employees.

“It is crucial that the proposals are now adopted by the Government without delay.”

Vince’s statement was a little (only a little) more constrained:

“Many of the options we are consulting on are reflected in the High Pay Commission’s final report and we welcome their contribution to this important debate. The government will announce next steps early next year. In the last decade we have seen extreme increases in top executive pay which appear to be completely unrelated to the performance of companies. They are therefore acting against the interests of shareholders and consumers.

“There is widespread consensus, not just among the public but in the business community, that this is unacceptable and is undermining the credibility of our markets-based system. What I’m working towards is responsible capitalism where rewards are properly aligned with performance.”

I count myself an economic liberal, a believer in regulation-lite government. But Vince Cable’s moves appear shrewd to me, founded on three fundamental tenets of a free and fair market economy:

  • Transparent information on executive pay, including how top executive pay relates to median employee pay, enabling shareholders to become more involved in the oversight of companies;
  • The clear alignment of remuneration with performance — as Graeme Archer suggests in the Telegraph: ‘Make every listed company publish the ratio of their CEO’s salary to that of their lowest paid employee. Plot that ratio over the last five years, against the share price over the same period.’
  • Pay structures that reward long-term and sustainable corporate growth, rather than salaries/bonuses that reflect short-term risk.

Liberals do not believe in a market free-for-all, recognising that the perfect free market in reality does not exist; that government intervention is needed to ensure a level playing field, with low barriers of entry and easy access to information. The party’s support of the High Pay Commission’s proposals seem to me entirely consistent with a liberal approach to market economics.

And, incidentally, a further reminder of why the party was 100% right to go into Coalition — does anyone seriously believe a Tory business secretary would be touching this report with even the longest imaginable bargepole? Me either.

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  • The proposals appear to operate on a ‘name and shame’ system. Those who award themselves these obscene rises in the “We’re all in this together” climate have, time and again, shown no shame. The idea that shareholders (mostly large corporations/pension funds etc. whose executives are members of the same ‘closed shop’) will act to curtail salaries is fanciful.
    Recognising, and even identifying, the problem is one thing; decisive action is another.

  • Extremely disappointing. So now it is “liberal” for government to start dictating to shareholders how they need to pay the executives in their own companies, As if government had any right to do that – did government create these companies? Does government own these companies?

    This is not liberal. Let’s call a spade a spade. This is authoritarian. It is economically and socially authoritarian. I am very disappointed. I get the feeling our party is increasingly on the side of regulation and opposed to the individual. From telling people what the packaging on certain consumer goods is allowed to look like, to this ill-fated proposal which has come from Compass, by the way, we are increasingly behaving like any old-fashioned authoritarian nanny-state part would.

    If this continues, we will need to drop the “Liberal” from the party name.

  • Prateek Buch 23rd Nov '11 - 8:49am

    @Jason – transparency on its own is unlikely to have the desired effect, as many speakers and contributors at the launch event of the report said. they key is transparency alongside the tools to empower stakeholders to effect the necessary changes – a liberal thought if I ever saw one 🙂

    speaking of which @Robin – it is not liberal in the slightest to stand by and watch a minority of executives appropriate unjust rewards, often in the face of failure, whilst those they are supposedly accountable to don’t have the means to make their voices heard and the vast majority of employees are left behind. Just to be clear, nobody in the party, nor at the Commission for that matter, is seeking to dictate anything to shareholders – we’re seeking to empower shareholders, employees and other stakeholders with the appropriate tools to ensure remuneration is fair.

  • jenny barnes 23rd Nov '11 - 9:48am

    I doubt these ideas would make any difference. As they say in rural America, might as well ask an alligator to let go of a hog.
    I’d suggest progressive income tax. Say 90% on income more than 10 times the median income, and 99% on income over 100 times the median.

  • Daniel Henry 23rd Nov '11 - 11:48am

    @ Robin
    Take it easy! They’re only demanding transparency. The only measure that could be considered “meddling” is that is that employees must have a part in renumeration committees. Is that really such a big intrusion?

    From your rant, anyone would think that we were setting maximum levels of pay or putting strict regulations on how much people can be paid.

  • You only have to look at this to know that something is seriously wrong:

  • Great theory if you want to witness the unedifying spectacle of all those high salaries levelling upwards. “I’ve had an offer from X plc and I’m resigning unless you pay me the same as Mr Y”.

  • John Carlisle 24th Nov '11 - 8:59am

    Vine Cable’s point 3 is the most significant, i.e. bonuses. Just stop paying them – for anything to anyone. Just pay your rate for the job. If it is pay that attracts more than the job itself then you do not want them. As Joey Barton, that frustrated genius who plays football said: “I would play for nothing. I love the game.” Until we stop creating policies that indicate that we believe that employees are only motivated by money, i.e. bonuses, we will continue to get and create greedy employees – about whom shareholders can do nothing. Ask the shareholders of Shell.

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