Enterprise and Regulatory Reform Bill
Debate between Lord Blackwell and Lord Tugendhat
Lord Blackwell
My Lords, I am sure that all of us who are directors of public companies agree with the spirit of the Bill: that directors have an obligation to carry shareholders with them and to win their support for policies on remuneration as on other matters. However, the noble Lord’s particular point about having a special resolution to approve remuneration policy I found very difficult to follow. I am not sure that that argument was well made.
The special resolution requiring a 75% vote to approve a remuneration policy in effect biases any vote of shareholders against approving the director’s recommendations. I do not quite follow why, if 51% of voter shareholders believe that the remuneration policy is to the advantage of shareholders and 49 % believe it is against, the 49% should hold sway over the 51% who agree with directors. I could argue that there might be a case for biasing the vote the other way: that there ought to be presumption that the director is acting in the interest of shareholders and not necessarily that the majority voted the other way. However, I am perfectly happy to go along with a majority vote one way or the other. I just do not think that the noble Lord made any case for requiring a special resolution.
Lord Tugendhat
My Lords, I would like to address the noble Lord’s point about annual approval. I spoke in favour of annual approval on Second Reading, and I am a little surprised to be speaking on it again on Report. I gained the very clear impression from the wind-up speech of the then Minister the noble Lord, Lord Marland, that there would be annual approval. In referring to the noble Lord, Lord Gavron, Lord Marland said:
“He also asked me the frequency of the new binding vote on remuneration policy. The binding vote on future pay policy will happen annually, unless companies choose to leave their pay policy totally unchanged. I think there will enormous shareholder pressure on companies that continue to leave their policy unchanged”.—[Official Report, 14/11/12; col. 1608.]
I strongly agree with the noble Lord, Lord Mitchell, that this matter, like other important issues that come before the AGM, should be dealt with annually. Indeed, it would be eccentric to suggest that any other proposition be put forward. If the Minister really wants us to agree to triennial agreements, he will have to make a powerful case that has not yet been made in this Chamber.
It would be preferable if the Minister cast some light on how he interprets the undertaking of the noble Lord, Lord Marland. If the Minister is saying that any change whatever in executive remuneration is subject to a vote, we will, in practice, have annual votes because it is inconceivable that you would have a group of executive directors whose pay would remain completely unchanged for three years. Indeed, it is pretty unlikely that you would have a group of executive directors who themselves remained completely unchanged for three years. The overwhelming likelihood is that there would be changes in the pay packages and the composition of the executive group. If the Minister can assure me that any change whatever, either in an individual package or in incorporating the arrival of a new executive director, will mean that the matter has to come before an annual vote, I would be able to follow my noble friend. However, if he cannot do that and if he is saying that unlike the report and accounts and all kinds of other things, executive pay should be given special status and subjected only to triennial review, he is diminishing the value of the Bill.
I said on Second Reading that I commend the Government for tackling this issue, and I hold to that position. It was not tackled under the previous Government and it is good that it should happen now. The Government have established the principle that the issue is a matter of public interest, but if that is the case, as is the case in other important areas such as the appointment of auditors and the annual report and accounts, why on earth should it not be dealt with on an annual basis? Or is the Minister going to suggest that the appointment of auditors should be made triennial, quinquennial or at some other interval? He must either try carefully to explain why he puts executive pay into a special category—not just tell us about investors saying something but actually make a reasoned case—or he must convince us that any change whatever will trigger an annual approval.