PM backs executive pay vote plan

8 January 2012 Last updated at 06:20 ET

 

David Cameron: "Big rewards when people fail make people's blood boil"

David Cameron has promised shareholders a binding vote on executive pay, in an effort to deal with excessive salaries.

The prime minister told the BBC there had been a "market failure", with some bosses getting huge rises despite firms not improving their performances.

He also pledged to tackle large payouts for executives dismissed because of poor performance.

But Labour accused ministers of failing to increase fairness and transparency from boardrooms and the City.

Research from the Institute for Public Policy Research (IPPR) suggests chief executives in 87 of the FTSE 100 companies took home an average of £5.1m in basic pay, bonuses, share incentives and pension contributions in 2010-11.

This represents a year-on-year increase of 33%, while the average increase in company value was 24%, the think tank said.

'Taking money'

And an inquiry concluded in November by the High Pay Commission found that the pay of top executives at a number of FTSE companies had risen by more than 4,000% on average in the last 30 years.

Business Secretary Vince Cable is expected to outlined the government's response later this month.

Mr Cameron told BBC One's Andrew Marr Show that "excessive" bonuses made "people's blood boil", adding: "Government can't tell people what they should be paid but [should act] where you've got a market failure...

"Some people are worth £2m [a year] because they've added masses of investment and masses of growth."

Some bosses did not justify their pay and were "taking money from the owners of the companies and from pension-holders and the employees. This is what we will be addressing."

At present, shareholders have a non-binding, or advisory, vote on pay.

The measures under consideration by the coalition are said to include shareholders getting a veto both on pay packages and on deals given to executives who leave jobs in which they have failed.

Mr Cameron promised "clear transparency, in terms of the publication of proper pay reports and binding shareholder votes".

He denied measures would amount to "gimmicks and tokenism", adding that in future "rewards would be linked to success, not failure".

The prime minister hinted that legislation could be announced in the Queen's Speech, which is likely to take place in the spring.

Labour has called for policies on pay and a "more responsible" capitalism.

'Complex'

Shadow business secretary Chuka Umunna said the prime minister was "failing to meet the three tests of greater accountability, transparency and fairness which Labour has set to end the 'something-for-nothing' culture in our boardrooms and the City".

He added: "There is no point giving shareholders a vote on executive pay without the greater transparency needed so they can discern the aggregate remuneration executives receive under the complex arrangements currently in place."

Kevin Green, of the Recruitment and Employment Confederation, said there were concerns about how some suggestions to curb executive pay would play out.

"The idea of a binding vote from shareholders. Do we have to get all of the shareholders together at an AGM and have a vote?

"While we recognise there is a perception issue, what we're really keen to see is that there are some workable, sensible solutions from government."

Meanwhile, French finance minister Francois Baroin has suggested that an EU-wide tax on financial transactions, including share sales and currency deals, should go ahead.

'Growth agenda'

But Mr Cameron, who fears this would damage the City, said he would veto the proposal, saying: "If the French themselves want to go ahead with a transactions tax in their own country then they should be free to do so.

"We actually have stamp duty on share transactions in Britain and yet we have one of the most competitive and successful financial services markets anywhere.

"But the idea of a new European tax when you are not going to have that tax put in place in other places I don't think is sensible, and so I will block it unless the rest of the world all agreed at the same time that we were all going to have some sort of tax."

The prime minister also promised to work during the year to reduce unemployment, saying the whole government was working to "a growth agenda" for the economy.

And he urged the Scottish National Party government in Edinburgh to hold its proposed referendum on whether to leave the UK "sooner rather than later".

First Minister Alex Salmond has said such a vote will only take place in the second half of the five-year parliamentary term, which began last year.