Vince Cable told MPs that it was not his job to “micromanage company pay”. Quite right, says The Times. “Unfortunately, the business secretary has decided to micromanage corporate governance instead.”
Under his proposals, boards and remuneration committees must listen to the views of employees on executive pay; treat shareholder votes on remuneration as binding (and require a 75% rather than 50% approval); bring in claw-back mechanisms to end payments for failure; and increase transparency and accountability.
Making such matters the government’s business “sets a dangerous precedent”. It “feeds resentment… and sends the impression that Britain is not open for business”.
FTSE 100 bosses’ pay increased by more than 13% per year between 1999 and 2010, while the index averaged 1.7% per year, but pay that is “out of kilter with performance” is a matter for shareholders, says Lex in the Financial Times. Even if some of these “mostly cosmetic proposals” are sensible, implementation will be “messy”. Claw backs sound “noble enough”, but how should poor performance be quantified, “given that most metrics can be manipulated”? A single pay figure per executive sounds simple, but “what discount rate should be applied to deferred payments”? There’s a danger bosses will see this interference as a “precursor to legislated pay. Like capital, executives go where they feel most at home.”
And what about the binding vote? asks Jonathan Guthrie, also in the Financial Times. It will “expose new recruits to the cancellation of the pay deals” that lured them into the job, and raising the threshold to 75% “unfairly privileges objectors”.
No wonder Cable axed proposals for worker representation on remuneration committees. “Conscious of how unpopular it was with business, George Osborne must have put his foot down.”
That was a big mistake, says Duncan Exley in The Guardian. Vince Cable needs to “look past executive pay to the wages of the workforce”.
Low pay has negative effects; productivity is lower in firms with larger pay gaps and workers are less motivated if they think they are being underpaid. Low pay also suppresses spending in the wider economy and has a “direct cost to taxpayers” in the billions of pounds of benefits it costs us.
For all the obsession with linking executive pay to performance, “studies suggest that incentives tend to be counterproductive for directors, but effective for unskilled staff”. Workers need more of a say.
It is not the job of politicians to interfere in companies’ contractual matters, no matter how offensive some pay packets seem, says Dominic Lawson in The Sunday Times. All they can do is “redistribute income from rich to poor” through taxes.
Cable knows there’s “nothing in his proposed new laws that would have stopped Reckitt Benckiser’s former CEO, Bart Becht, pocketing £92m in a single year”, says Alistair Osborne in The Daily Telegraph. “Most shareholders will turn a blind eye as long as the share price goes up.” Legislating over executive pay is just “populist political theatre”.