Introduction of a Maximum Wage

Debate between Lord Vaizey of Didcot and Iain McKenzie

Tuesday 10th February 2015 Westminster Hall

[The Minister for Culture and the Digital Economy (Mr Edward Vaizey)]

It is a great honour to appear under your chairmanship, Mr Streeter. I thank the hon. Member for Inverclyde (Mr McKenzie) for calling this important debate. I am grateful for the contributions from the hon. Member for Strangford (Jim Shannon), who explained why he could not remain in his place, and the hon. Member for Coventry South (Mr Cunningham).

I congratulate the hon. Member for Hartlepool (Mr Wright) on his reasoned response on behalf of the Opposition. Of course, I cannot resist echoing the comments of his predecessor, Lord Mandelson, who said, while in government, that the Labour party was

“intensely relaxed about people becoming filthy rich”,

which perhaps provides some of the context for the debate. Indeed, those comments were echoed by the Labour party’s education spokesman, the hon. Member for Stoke-on-Trent Central (Tristram Hunt), who went on television on Sunday to talk about how the party was “aggressively pro-business”, because it may unwittingly have given the impression over the last few weeks that it is opposed to businesses and keen to burden them with regulations.

When Lord Mandelson was in government, the ratio of top pay to average employee pay increased from just 47:1 in 1998 to a peak of 151:1 in 2007. I am pleased to say that it had fallen back to 121:1 by 2013. That reflects the fact that the average total remuneration awarded to FTSE 100 CEOs fell by 5% in 2012 and by a further 7% in 2013.

Those cheap party political points aside, may I say that I have a lot of sympathy with the framework of this argument? We live in a civic society, and it is important people feel that they are part of a community, that they will be rewarded for the work they do and, just as importantly, that people are not remunerated for work in a way they perhaps do not deserve.

Philosophically, it is important to reflect on how public opinion views very high pay. For example, the football fans among us might not baulk too much at the pay of a top striker, defender or even manager in the premier league; indeed, some fans might say that any pay is possible, as long as the team gets the best person. However, that view is balanced by the fact that, to a certain extent, a footballer or other sportsperson has nowhere to hide; they are paid according to their performance on the pitch, and we can all assess that, so they are as vulnerable as anyone else to being dumped unceremoniously when their performance falls short. However, when we see some top executives being paid significant sums—or, even worse, leaving a job with a significant golden farewell—that sometimes impinges on our sense of fair play.

I say that because I am conscious of the fact that the Government have made efforts to reflect some of the public’s concerns. Indeed, the debate takes place against the background of significant allegations against HSBC about running a tax evasion operation. It also takes place on the day the Prime Minister has rightly sent out a message to chief executives that they should share the proceeds of growth and reflect in the wage packets of the people who work with them the fact that the economy is now growing.

[Mr McKenzie]

The Minister mentions the revelations about HSBC in the last few days. Is that not a prime example of people taking excessive risks in pursuit of that elusive excessive pay?

[Mr Vaizey]

I know only what I have read in the papers, so I hesitate to extrapolate too much from that case. However, if those allegations are proved correct, I hope the appropriate consequences do follow. It sometimes astonishes me that the behaviour of some companies—happily, they tend to be the exception rather than the rule—does not reflect their place in civic society.

Where and how should the Government intervene? The Government do not believe in blanket regulation of high pay through, say, a maximum wage. Companies and their shareholders need the flexibility to negotiate outcomes that work for them. However, we can force greater transparency on companies in terms of how they remunerate their top executives, and we can also give those who invest in such companies the power to demand simpler, more long-term pay structures—the long term has been mentioned in a number of contributions.

We have acknowledged that directors’ pay has gone up in recent years, while the link to companies’ performance and the wages of those who work in those companies has grown weak. I repeat that that damages the long-term interests of business, and it is right that we see that as a market failure and address it.

The Government’s reforms have been alluded to. The tone suggested that they were good first steps, but that they perhaps did not go far enough. Let me set out exactly what we have done. The new regulations came into force in October 2013. They create a more robust framework for the setting and reporting of directors’ pay. They have boosted transparency so that what people are paid is clearer and easily understood. They have also given shareholders the power to hold companies to account by calling for binding votes. We want to restore a stronger, clearer link between pay and performance and to address the culture of reward for failure.

Our reforms require companies to report the ratio of the average percentage change in employee pay to the percentage change in the chief executive’s pay. That should allow shareholders to understand whether pay increases apply proportionately to all employees or only to those at the top. Our reforms also mean that companies must report on how the pay and conditions of employees inform directors’ pay, whether companies have sought the views of their work force and, if so, how those views were sought.

We are monitoring the impact of our reforms. Most fair-minded people would agree that it is early days. Our focus is on understanding how companies have applied the regulations in the last couple of years. What trends can we see in remuneration packages? How have shareholders responded in terms of voting and engagement? We will publish the findings from that analysis shortly, and we will look to see whether we can draw any policy conclusions. When we implemented these policies, we always made it clear that we would keep them under review. What we know from the evidence available at the moment is that companies are responding to shareholder expectations. There are positive signs of restraint on the level of directors’ pay, and many companies have simplified their remuneration policy and linked it more closely to measurable performance over—crucially—a longer period of time.

Of course, the media will report rising pay. Sometimes that reflects previously agreed pay awards. What matters to the Government is the pay now being awarded under the new regime. As I mentioned earlier, the pay of the FTSE 100 CEOs has fallen significantly in the past two years. I gather also that statistics show that about a third of FTSE 100 CEOs and executive directors received no salary increase last year. It is our view that the reforms have begun to bring about a step change in transparency and that companies set out their future pay policies in much more detail than before.

Oral Answers to Questions

Debate between Lord Vaizey of Didcot and Iain McKenzie

Thursday 13th March 2014 Commons Chamber

[Mr Iain McKenzie (Inverclyde) (Lab)]

9. What recent discussions she has had with social media companies on tackling online antisocial behaviour.

[The Parliamentary Under-Secretary of State for Culture, Media and Sport (Mr Edward Vaizey)]

I chaired a meeting with social media companies on 13 February to discuss measures to protect people when they are online. We confirmed our position that social media companies should respond quickly to incidents of abusive behaviour on their networks and ensure that they have measures to protect users. We intend to continue to work with industry on those issues.

[Mr McKenzie]

We have continually called on the Government to introduce legislation to deal with the epidemic of cyber-bullying that we are witnessing, so why do they not make it an offence in its own right?

[Mr Vaizey]

Working with social media companies in a flexible, responsive way is the best way forward. We have covered a whole range of issues, including age and identity verification, the reporting of abuse, adjudication, auditing, filtering and funding; we can cover all of those comprehensively and flexibly through dialogue.

Cyber-bullying

Debate between Lord Vaizey of Didcot and Iain McKenzie

Tuesday 3rd December 2013 Commons Chamber

[Mr Vaizey]

That was my error in omitting to mention that Facebook is on the board of UKCCIS, and we regularly engage with social media. However, I think that we can—and should—do more, and I will come to that in a minute.

As I was saying, the UKCCIS board considers what companies can do to help to address cyber-bullying and to develop robust policies. It has been working with the industry and social media companies to look at the ease with which users can report abuse on their sites, and how those reports are dealt with. The Government have been clear that we expect social media companies to respond quickly and effectively where behaviour contravenes those policies. It is also important to emphasise—I do not know how well this will go down with certain elements in the Chamber—that that work is also happening at European Union level. I think it is worth convening a meeting in the new year with social media companies and interested Members. If any Member in the Chamber wishes to participate, I would be happy to facilitate it.

[Mr Iain McKenzie (Inverclyde) (Lab)]

Does the Minister believe that any legislation brought in by the Government must cover all those who participate in the bullying? That is not just the initial person who put up the bullying or slanderous message, but those who repeat it online and spread it around, as they are equally to blame.

[Mr Vaizey]

A fundamental principle of law is that what is illegal in the physical world is illegal in the online world. If someone participates in an assault or in bullying in the physical world, they should be equally susceptible to whatever law they would contravene were they to do that in the online world. Someone repeating a libel online is not exempt from being sued because they have simply repeated what somebody else has said. That is the case with bullying and cyber-bullying as well.

I repeat my offer to facilitate a meeting in the new year. The industry must understand that we need to make things as easy as possible for users. There may be common ground here. I think we considered this issue when we were tackling inappropriate content online and protecting our kids, and it goes back to what the hon. Member for Upper Bann was saying about teaching parents in his constituency. Someone might be sitting in their headquarters thinking, “Well, we’ve got robust policies. We’ve got this, we’ve got that,” but it must be clear to all users and across different platforms that whatever social media someone participates in, they should expect certain key principles such as the ability to make a complaint or receive a rapid response. I will facilitate that meeting.

I mentioned education, and the whole drive against cyber-bullying must be considered as part of a broader drive to tackle all forms of bullying. The Government have sent a clear message to schools that bullying in any form is unacceptable and should not be tolerated. For schools there is a mixture of education and legislation, as well as greater freedom and more accountability. For example, as part of the national curriculum, the Government will ensure that children are educated about the dangers of the internet. Although schools are required by law to have a behaviour and bullying policy, they have flexibility in how to implement that policy, while at the same time they are held to account by Ofsted.