Company Directors: Remuneration

– in the House of Lords at 2:58 pm on 9th July 2001.

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Photo of Lord Tebbit Lord Tebbit Conservative 2:58 pm, 9th July 2001

asked Her Majesty's Government:

Whether they intend to legislate to give shareholders the right to fix the remuneration of company directors.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, the responsibility for fixing the remuneration of executive directors lies with the remuneration committees of listed companies and the Government have no intention of changing that aspect of corporate governance. However, it is the Government's responsibility to ensure that the corporate governance framework promotes transparency and accountability to shareholders, and we will be taking steps to improve both of them.

Photo of Lord Tebbit Lord Tebbit Conservative

My Lords, does the Minister believe that the Government lived up to the standards they expect of companies in that, immediately after the voting on polling day, they awarded themselves substantial pay rises? Would it not have been better to announce that proposal before the shareholders voted?

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, if the noble Lord had listened carefully to my Answer, he may have considered that a simple statement of thanks for giving him some accurate information was the right approach, rather than trying to introduce a totally different subject.

Photo of Lord Smith of Clifton Lord Smith of Clifton Liberal Democrat

My Lords, will the Government honour the undertaking given by Mr Stephen Byers, when he was at the DTI, that he would produce a code of conduct regarding the remuneration packages of directors? Twice in the previous Parliament I asked that question and I was fobbed off with the answer, "Soon". The last time that I asked the Minister was over a year ago. Will the Government please have some care for the preservation of the English language or will they continue to procrastinate, bearing in mind the situation? It is a thorny issue but it is getting out of hand.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, consistently the Government have made it clear that they will produce their views on the matter of accountability as soon as the Company Law Review's wider recommendations on the issue have been made. That report is now with the Secretary of State and when she has had time to consider it, she will come forward with government proposals on this key area.

Photo of Lord Marsh Lord Marsh Crossbench

My Lords, does the Minister agree that the concern about the salaries of senior executives in major companies extends to companies such as football companies and possibly to pop radio stations? Most footballers and popstars receive considerably more than many directors.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, the same principle applies to those companies as to others. Essentially, how shareholders want to see their money used is a matter for them.

Photo of Lord Dubs Lord Dubs Chair of Labour Peers

My Lords, would my noble friend care to distinguish between remuneration that comes out of the profits of companies and remuneration that has a significant input from taxpayers?

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, I believe that shareholders should deal with remuneration resulting from company profits, but in a transparent manner and with accountability to shareholders.

Photo of Baroness O'Cathain Baroness O'Cathain Conservative

My Lords, how does the Minister expect transparency to be increased? At the moment the transparency required for executive directors, as reported in the annual report and accounts of every company by the remuneration committee in the remuneration report, gives every detail possible. I just wonder what more will be imposed on companies.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, as I am sure that the noble Baroness knows, Stephen Byers made a clear statement on this subject. One major step forward would be clearer statements about the performance of a company, as happens in America, and to give effect to what the Greenbury report asked for, which was a clear statement on remuneration policy. As she knows from her careful scrutiny of many company accounts, that is very infrequently carried out.

Photo of Lord Peyton of Yeovil Lord Peyton of Yeovil Conservative

My Lords, in applying their minds to this important matter, is it too much to hope that the Government may give some thought to the meaning of the word "bonus" that, of late, has got out of control? Perhaps they could take the opportunity to make it clear that the word does not always have a big ingredient of merit.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, I totally agree with the noble Lord. The prime issue is that there should be a clear link between the performance of a company and an individual director and the remuneration that he or she receives; therefore, where performance is poor or mediocre large bonuses should not be given.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Liberal Democrat

My Lords, given that there are, by any reckoning, hundreds of people earning packages of £1 million plus a year, how can the Government be indifferent to the impact of that on differentials, particularly as they affect the public services? As they pretend to be concerned about education and teachers, do they believe that such a state of affairs is gravely damaging to the recruitment of teachers and, for example, to the availability of affordable housing for public service workers in London?

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, the Government are not indifferent to any of these issues, nor to the action that should be taken to deal with them. Ultimately, it is for the shareholders, whose money is involved, to make the judgments through the remuneration committees on what payment should be made.

Photo of The Earl of Northesk The Earl of Northesk Conservative

My Lords, what view do the Government take of directors exercising share options at reduced levels to discount a falling share price?

Photo of Lord Watson of Richmond Lord Watson of Richmond Liberal Democrat

My Lords, does the Minister consider that the desirable relationship between remuneration and reward exists in the recent case of Railtrack?

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, again that is a case for the shareholders of Railtrack. In this case, I am delighted that it will be on the agenda for the AGM, where no doubt the shareholders can express their views.

Photo of Lord Naseby Lord Naseby Conservative

My Lords, does the Minister recognise that, although we have had Greenbury, Hampel, Turnball and Cadbury, and while there may be codes of conduct, in recent times there have been too many instances, particularly regarding the renegotiating of stock options, that do not find favour with shareholders, with the public and with anybody other than those who benefit directly? If there is to be a review, perhaps that can be one of the first subjects to be examined.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, that is the point of the decision that we are to take on the accountability to shareholders. Clearly, on occasions when there is genuine concern by shareholders as to the remuneration practice of a company, the fact that they are not always given the opportunity to make their feelings known at the AGM is not satisfactory. That is exactly the issue that we shall consider when we bring forward the proposals on accountability.