Employment: Remuneration - Question

– in the House of Lords at 11:14 am on 8th September 2016.

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Photo of The Bishop of St Albans The Bishop of St Albans Bishop 11:14 am, 8th September 2016

To ask Her Majesty’s Government how they intend to address the gap between the remuneration of senior executives and their employees.

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Minister of State, Department for Business, Energy and Industrial Strategy

We intend to publish a consultation document later this year which will set out a range of options for improving corporate governance, including measures to strengthen the way executive pay is set and reported. This follows on, and is in line with, the Prime Minister’s statements on this important subject.

Photo of The Bishop of St Albans The Bishop of St Albans Bishop

I thank the Minister for her reply. I wonder whether she has read the report published last week by the High Pay Centre written by Chris Philp, the Conservative Member for Croydon South, which makes a number of recommendations, including requiring firms to create a shareholder committee with the power to ratify pay packages comprised of shareholders with longer-term holdings in the company. Will these proposals be part of the consultation that will be published?

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Minister of State, Department for Business, Energy and Industrial Strategy

I have not yet read the report, although I know that it was discussed in the House and I think it makes a very useful contribution. As I see it, that idea is in the mix of what we will consult on. The underlying objective is to make shareholders exercise much better oversight over company decision-making. The changes that we will be looking at, and indeed prior reforms, have been directed at this objective—some with more success than others.

Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative

My Lords, does my noble friend know that many of the big institutions contract out their voting to other organisations at company AGMs? Is not the key to ensuring that remuneration is brought under proper control that those institutional shareholders exercise their rights and that the Government change the rules so that votes on executive pay at shareholder meetings are binding on boards?

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Minister of State, Department for Business, Energy and Industrial Strategy

My noble friend makes a very good point about voting. I am glad to say that one of the options we will be looking at is binding votes, for the reasons that he says.

Photo of Baroness Burt of Solihull Baroness Burt of Solihull Liberal Democrat Lords Spokesperson (Business, Innovation and Skills)

My Lords, it seems to me that the problem is that companies benchmark their executive pay against other companies in the marketplace. Does the Minister agree that a more diverse range of company models in the marketplace, such as mutuals where workers are also shareholders, would bring a greater sense of proportion to executive pay and have a stabilising effect on pay in the marketplace generally?

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Minister of State, Department for Business, Energy and Industrial Strategy

The noble Baroness is right that there is a place for comparisons, although, as somebody who sat on a number of boards, I actually think that one needs to look at the overall position and in relation to the wider workforce. That is something that we will certainly look at as part of the consultation that we will publish, because some of this stuff is complicated and we need to make sure that we talk to people on the detail.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

My Lords, my noble friend referred to the importance of increasing shareholder power. Is she aware that individual shareholders in particular are increasingly under pressure to hold their shares through nominees? The nominee holder is not required to send on information to the individual shareholder about the company in which he or she has a holding. They are therefore disenfranchised. Would it not be a good idea to make a simple legal change which would require nominee companies to enfranchise and inform the people who actually hold the shares?

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Minister of State, Department for Business, Energy and Industrial Strategy

My noble friend, as always, brings unusual insights to the debate. It sounds as though this is a point that he and I should discuss further, because clearly we want to make sure that shareholders are exercising the oversight that we all want.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Opposition Whip (Lords), Shadow Spokesperson (Culture, Media and Sport), Shadow Spokesperson (Business, Energy and Industrial Strategy), Shadow Spokesperson (Education)

My Lords, there is an irony in this Question being answered today, in that later today we will consider a statutory instrument which makes a welcome increase to the national minimum wage by the order of 25p per hour. An earlier report by the High Pay Centre, which is a cross-party initiative, reported that FTSE 100 CEOs had just enjoyed a 10% pay increase to over £5.1 million per annum on average in the last year. Can I press the Minister a little further on what will be in the consultation? She mentioned a number of things, but the Prime Minister’s comments, to which I think the noble Baroness referred, are that she would like to see not just consumers represented on company boards but employees as well, and she wants to see more transparency on pay, including making shareholder votes on corporate pay not just advisory but binding. Will the noble Baroness confirm that?

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Minister of State, Department for Business, Energy and Industrial Strategy

We are looking at the precise wording of the consultation document, but the idea is to explore the various ideas that the Prime Minister set out so eloquently in this area. That would include binding votes, employee representation, which I am aware of because I used to sit on a German board—it has pluses and minuses—and, of course, full disclosure of bonus arrangements.

Photo of Lord Tebbit Lord Tebbit Conservative

Does my noble friend agree that it might help to bring a different dimension to these discussions if, occasionally, we referred not to the “shareholders” but to the “owners” of businesses and not to the “executives” but to the “hirelings” who operate on behalf of the owners?

Photo of The Earl of Erroll The Earl of Erroll Crossbench

Is there not also a deeper problem, which is that many of these remuneration packages of senior executives are geared towards profit targets in various ways? The quickest and easiest way of doing this is to axe the visionary research and development programmes in order to increase the bottom line temporarily to get their rewards. As a result, some of our larger companies are suffering from, I would say, a lack of vision, expansion and innovation.

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Minister of State, Department for Business, Energy and Industrial Strategy

The noble Earl knows that I share his passion for innovation and R&D. I believe we need a governance framework that ensures a good sense of strategy and long-term planning, and that helps to encourage innovation and R&D.

Photo of Lord Haskel Lord Haskel Deputy Chairman of Committees, Deputy Speaker (Lords)

Some companies publish a ratio between the top salaries and the bottom salaries. As part of the Government’s consultation, are they going to seek some kind of standard—some kind of ideal ratio—for this sort of thing?

Photo of Baroness Neville-Rolfe Baroness Neville-Rolfe The Minister of State, Department for Business, Energy and Industrial Strategy

As the noble Lord will know, the devil is in the detail in these matters. Certainly however, requiring the publication of the ratio between the CEO’s pay and the relevant average is something we will be looking at. That is coming in in the United States in 2017, as he will know. We need to learn from that experience and, as I have said, try through our consultation to come to the right changes in this important area.