Vince Cable threatens to get tough on executive pay after 32% rise

Business secretary hits out at City’s ‘ethics of wild east’ and sets out plans for consultation on tougher stance Vince Cable is to hold top-level talks with the City grandees who set boardroom pay in order to thrash out ways to end the “ridiculous” and “outrageous” levels of executive bonuses. The business secretary is also to demand more disclosure about bonuses and their link to company performance after hitting out at the “ethics of the wild east” in the City, which he said damaged the reputation of the UK. He set out plans to launch a consultation proposing a tougher stance on executive pay and will also convene talks with the directors who set pay and bonuses for top executives to seek ways to “intervene sensibly” to end the culture of “rewards for failures”. New research published by Merrill Lynch shows that the number of wealthy individuals in the world has reached 10.9 million – more than existed before the 2008 banking crisis. Their collective wealth, $42.7bn, has also topped the levels it reached in 2007, before the crash and recession sparked by the crisis. In a speech to an audience of leading City investors, the business secretary said: “It is actually outrageous that last year median earnings for FTSE 100 chief executives rose 32%, whereas the share index rose only 7% – and average employee pay rose by less than 2%, barely half the rate of inflation.” Average pay for the bosses of the top 100 companies has leaped to 120 times that received by an average UK employee from 45 times in 1998, Cable said. While he did not set out the proposals that will be published in next month’s consultation, among the ideas he is thought likely to be considering is a requirement that companies publish the multiple of the pay of its chief executive to the average worker. Cable also hinted that he was considering whether new rules to make public the size of pay deals awarded to bankers outside the boardroom – whose pay was hidden until this year – should be adopted more widely. In a sideswipe at his audience, comprising some of the City’s biggest investors, he said: “Ridiculous levels of remuneration are going unchallenged as the norm, when there is no clear evidence of a correlation with performance.” He criticised shareholders, who he said had not been challenging top pay, and companies which had not attempted to restrain pay. “Ultimately, there is no substitute for leadership from companies themselves and their owners … to be frank, I don’t see much evidence that remuneration committees have been living up to their responsibilities, or that major shareholders have been holding them to account,” he said. Risking a row with coalition partners in the Conservative party for proposing a more interventionist stance, the Liberal Democrat minister immediately faced criticism from Labour. John Denham, the shadow business secretary, said: “Vince Cable is finally responding to the issue that Ed Miliband has been raising for the past year. But Cable has a record of talking tough and failing to deliver on bank bonuses and excessive pay.” Ed Miliband, the party leader, has said a Labour government would require companies to publish the pay gap between their boardrooms and the average earnings of their workers. Labour introduced a vote on remuneration reports – the first one to be voted down was GlaxoSmithKline in 2003 – but, as the votes are not binding on companies, they are able to ignore them. Tesco, for instance, endured a 47% revolt against its pay deals last year, and is facing another rebellion at its annual meeting next week. The Association of British Insurers – whose event Cable had been speaking at – said: “As institutional investors we agree that good results should be rewarded, but we agree that it cannot be right to reward failure. This is why we have been tackling this issue. Investors have been tough on soft targets or shifting goalposts but we accept that this needs continued focus. We look forward to talking more to the government about this important issue.” Executive pay and bonuses Pay Economic policy Vince Cable Banking Work & careers Jill Treanor guardian.co.uk

Posted by on June 22, 2011. Filed under News, Politics, World News. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.