Average FTSE 100 CEO pay more than quadrupled from £1 million in 1998 to £4.5 million in 2012. Since then, the median average has fallen by £1.04 million. We have recently implemented a number of reforms to make further improvements to executive pay transparency and accountability through vehicles such as the UK corporate governance code.
The Government’s Green Paper on corporate responsibility was published more than two years ago, and since that time we have seen corporate pay issues in Carillion and only last month in Thomas Cook. Last week, the Business, Energy and Industrial Strategy Committee questioned the chief executive of Thomas Cook about corporate responsibility issues on pay. What precisely have the Government done to act on corporate pay since that Green Paper two years ago?
I thank the right hon. Gentleman for his question. As I mentioned, CEO pay has fallen. There were reforms at the beginning of the year, to ensure that shareholders’ voices are heard more in the boardroom. There is a binding vote every three years on remuneration policy, and there is now an advisory vote every year. If it is not successful, pay has to be put before the next AGM. As he will know, the Investment Association now keeps a record, at the Government’s request, to ensure that we are tracking pay where there is shareholder dissent.
Does my hon. Friend agree that the right way to control executive pay is to increase democratic control of capital, not by increasing the powers of the state but by dramatically improving the rights of shareholders?
My hon. Friend is right, and that is what the Government’s reforms have done. As I outlined, shareholders have a vote every three years and an advisory vote every year. Through the reforms, we have also enabled employee directors, non-exec directors or employee councils to have representation on the board. Companies now have to explain their wider pay policy and how it affects the whole company.
The chief executive of Thomas Cook was paid more than £8 million during his time as chief executive of a company that has now collapsed, costing 9,000 jobs in this country, with 150,000 customers having to be brought home at a cost to the taxpayer. When he gave evidence to our Select Committee last week, he said he would reflect on whether he will pay back any of his bonus. What will the Government do to ensure that bonuses can be and have to be clawed back after catastrophic failures of businesses like that?
I thank the hon. Lady for the work she is doing on the Select Committee. Thomas Cook did have clawback and malus arrangements in place for the recovery of directors’ bonus payments in specific circumstances, as required by the UK corporate governance code. My right hon. Friend the Secretary of State has asked the Insolvency Service to fast-track an investigation, and it will report back. As the hon. Lady outlined, the CEO did advise the Committee on
Rachel Reeves highlighted the point that the biggest concern is not simply how much is paid to executives, but their being paid for failure, not for success. The current arrangements in British company law allow chief executives and other executives to be paid on the basis of share price and allow them to buy back shares, propping up the share price. This is a formula for payment for failure. Is the Department looking at that?
I thank my right hon. Friend for raising this. Part of the reforms in January was to make organisations report back on the effect of share price growth on executive pay outcomes. We published some evidence before the summer from a review undertaken on share buy-backs, and there was no clear evidence to suggest that they did have a perverse outcome.