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Public Companies: Directors’ Remuneration

Volume 694: debated on Wednesday 25 July 2007

asked Her Majesty’s Government:

Whether they intend to require all public companies to disclose the pay gap between directors and their employees.

My Lords, in a Written Statement on 26 June about commencement of the Companies Act 2006, the Government announced their intention to require quoted companies to report more effectively on how pay across the company is taken into account in setting directors’ remuneration. Draft regulations were published on 19 July 2007, and these will be consulted on until 30 September this year.

My Lords, I thank the noble Lord for that Answer. Previously when he has answered Questions on this subject from me, he has adopted the traditional Pontius Pilate approach of the Government in washing their hands and saying, “Leave it to the investors”. Does he not agree that while Margaret Hodge’s Statement was most welcome and anticipated the regime change that has taken place, it would be useful to have greater elucidation as to how these companies will be required to explain their rationale for the remuneration? Finally, does he agree with the successor to the noble Lord, Lord Jones, as director-general of the CBI, that the growing extremes of wealth in this country are likely to lead to social unrest?

My Lords, of course the Government are concerned that we have a healthy society, which suggests that vast extremes of wealth present challenges to which the Government will respond. But the noble Lord will recognise that the Government are dealing with private companies with responsibilities to their shareholders. As he indicated, we are taking a step forward with the report on directors’ pay. The consultation document on the regulations is available now and we will legislate after 30 September.

My Lords, I am sure that the House will be grateful for an explanation as to why the noble Lord, Lord Jones of Birmingham, is not here to answer this Question. With the greatest respect to the noble Lord answering, the views of the noble Lord, Lord Jones, are of particular interest to the House. One reason for this is that the CBI, of which he was director-general, has argued that forcing all staff to disclose their salaries, while attractive at first glance, holds all sorts of pitfalls. Would the noble Lord like to expand on those pitfalls?

My Lords, the Government speak with one voice. The view of the noble Lord, Lord Jones, as regards requiring companies to reflect the salaries of all staff in their reports is also the view of the Government. Our view is reflected in the draft regulations—on which consultation is taking place—which indicate that it would be helpful and advantageous if directors’ remuneration was set against the general background of pay in the appropriate company.

My Lords, can I shed some light on remuneration committees? It is quite simple really: if I am on your remuneration committee, and you are on mine, we can sort out each other’s wages, can’t we?

My Lords, I shudder to think what mine might be if my noble friend were on my remuneration committee. The Government think that remuneration committees should consist of independent non-executive directors. Therefore, there should be an independent analysis of the value of the directors to the company. We have made our position on that clear. My noble friend may be indicating his anxiety that in the past remuneration committees have too often consisted of a rather closed group of people, in which case the Government agree with him. We are asking industry to widen the representation on such committees.

My Lords, does the Minister agree that there is frequently a discrepancy in pay between fund managers and people who raise the money and other people because if you want to keep them, they are much more expensive than part-time directors?

My Lords, that is certainly the case. Any regulations that cover business and industry cover a very wide range of organisations with different needs, levels of responsibility, numbers of employees, employee relationships and contracts. That very diversity of our business and industrial life means that regulation is something on which the Government must proceed with care.

My Lords, does the Minister accept that this ought really to be the Lord Dormand of Easington memorial Question, as he asked the same question on excessive director and executive pay twice a year, certainly for 10 years? Does he also accept it is a pity that, following Lord Dormand’s sad death, the Labour Party does not appear to care too much about the issue? On the wider question asked by my noble friend Lord Smith on relative degrees of poverty in this country, as highlighted by the Joseph Rowntree Trust, does the Minister recognise that this is a serious matter which deserves a better answer than that given by the Prime Minister in another place in which he seemed to indicate that it was all the fault of the Liberal Democrats’ voting behaviour?

My Lords, quite a lot of what goes wrong in our country is certainly due to the Liberal Democrats, as the noble Lord has said. Lord Dormand, in his latter years, recognised that his campaign was bearing fruit because the Government indicated their intention to legislate in this area. We have been making progress and the draft regulations to which I referred—the consultation on them will be completed by 30 September—are another stage in our attempt to get openness and fairness from companies in the way in which they remunerate directors. That is set against the background of the one issue uniting the House: remuneration should be related to merit and effectiveness.