Curb excessive pay, Cable warns
(London) Business Secretary Vince Cable has urged Britain’s leading companies to show restraint over executive pay and slash bonuses to restore public trust.
In a stern letter to the UK’s top 100 listed businesses he warned that persisting with excessive pay deals would be a “dereliction of duty” and could cause long-term damage to companies.
With the public gaze continuing to fall on exorbitant pay, Mr Cable issued a stark warning that new legislation could follow unless such deals were curbed.
His pleas come as the season of annual general meetings of leading companies gets under way, with Barclays’ being held tomorrow.
The bank paid out £2.38 billion in bonuses last year and last week announced a new director in charge of setting pay and bonuses in an attempt to defuse a potential shareholder revolt.
Writing to the remuneration committees that set pay at the FTSE 100 companies yesterday, Mr Cable said: “Getting pay wrong damages popular trust in business, and undermines the duty to promote the long term success of the company.
“I therefore think it vitally important that remuneration committees consider how remuneration policies can genuinely support sustainable value creation and avoid creating unwelcome incentives to focus excessively on short-term goals.
“At a time when every part of the economy is striving to get more from less, I hope you find yourselves animated by the same spirit.”
Mr Cable said “positive signs” and “greater transparency” had emerged following reforms last year to give shareholders a binding vote over future pay policies, but warned that some companies were not “observing the spirit” of the regulations and continued to pay excessive rewards.
The Lib Dem MP told the chairmen of the remuneration committees that over the last 12 months there had been striking examples of shareholders rejecting unwarranted pay deals, improving companies in the long-term.
He added: “I hope you agree that we need remuneration committees that act in a similarly active, challenging way. It is after all how managers up and down an organisation are expected to behave: getting the very most out of employees, for the very best value for money, rather than trying to find ways of paying the most possible.”
Mr Cable warned that he would be “vigilant” over the coming weeks and months in examining responses to the government’s reforms, saying: “You will be conscious that this issue continues to be the focus of considerable public debate.
“Unless business is seen to act responsibly, pressure for further action will inevitably result. I therefore trust that you will seize the opportunity to bring pay in line with performance.”
In a separate statement Mr Cable said big businesses now had the opportunity to “make peace with the public” after huge accelerations in pay prior to 2010 damaged trust.
He highlighted the banking sector, where he said pay deals were still “extraordinarily large”.
He said: “With Barclays in particular coming up on Thursday we will see how far they have listened to pressure from the people who own the banks, the shareholders, and exercise responsibility and long-term thinking.”
Shadow business secretary Chuka Umunna called for more accountability to end a culture of “rewards for failure”.
The Labour MP said: “At a time when shareholders have become more assertive, rather than fighting their corner ministers have acted as road blocks to reform.
“After promising to introduce annual binding shareholder votes on remuneration, Vince Cable and the Tory-led government caved in and have failed to match their rhetoric with action.
“We need more transparency, accountability and fairness in how executive pay is set. An important step in this direction would be for firms to publish the ratio of the pay of top earners compared to average employees as well as putting employee representatives on remuneration committees.
“But the Tory-led government has refused to back Labour’s plans to end rewards for failure.”