The consensus view on Philip Hammond’s Autumn Statement is that it wasn’t very interesting. But the consensus may be wrong. To see why, consider something he dropped in around
the middle (when most people had stopped listening).
“We believe that a market economy is the best way of delivering sustained prosperity to the British people,” he said. “We will always support a market-led approach; but we will not be afraid to intervene where there is evidence of market failure.” He then went on to announce that the letting fees charged to UK tenants are an example of market failure and abolished them.
This made some sense. Because letting fees are charged to the tenant, who is unable to shop around, they have risen to unreasonable levels. The new rules should change that. And the key point is that we can read these three lines of Hammond’s speech as a summary of the line that the May government will be taking on an awful lot of things.
They aren’t going to just get out of the way of the private sector. They are going regularly to intervene to try to make the private sector better. Those in any doubt should turn to our cover story this week, where we look at the effective market failure behind ludicrously OTT executive pay and then to politics and economics, where we touch on Theresa May’s plans to do something about it. There is talk of worker representation on boards, of binding shareholder votes on pay and of publishing pay ratios (between the highest and lowest salaries in a firm) to shame boards into getting a grip.
It’s a good start to the conversation, but to get to a good end, Hammond and May might like to think of executive pay in the same way as they have letting fees. It is all about putting the power in the right place. Landlords can force fees down. Tenants can’t. In the boardroom, remuneration committees could push pay down. But why would they? The same goes for institutional fund managers. They should take control of the situation. But why would they? Drawing too much attention to the pay of corporate management might have the nasty side effect of drawing attention to their own outsized pay packets.
So to solve this problem, May has to get the power to change it into the hands of those who it technically belongs to, who should use it and who would use it – the retail shareholders. Now that we all invest through funds and platforms, very few of us actually engage with the companies we are the end investors in.
So it’s time for some administrative changes (the type that technology makes cheap and easy). May should make sure that all platforms and managers routinely offer the beneficial owners of shares (that’s us) the ability to vote at AGMs – for every firm and on every resolution (with votes on pay binding). Those who don’t care can ignore the emails. Those who do can vote for change. That should put the cat among the pay pigeons.