Lord Blackwell
Main Page: Lord Blackwell (Conservative - Life peer)Enterprise and Regulatory Reform Bill
Lord Blackwell Excerpts
Lord Mitchell
I thank my noble friend for that comment. I think it is a really good idea. They should be accountable. They manage so much money, and I think it is a very important factor.
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.
Lord Lea of Crondall
My Lords, I strongly back this amendment. I know that it is not for here and now with the present Government, but in two years’ time it will be very interesting to see how a Labour Government get the architecture together to relate the income distribution of the rest of the enterprise to the incomes at board level. That is what they have in the most successful European societies—I include Germany, Holland and Scandinavia, and I do not think that anyone would draw up a very different list. In answer to the notion that these economies are not competitive, their place in growing world market share is far superior to that of Europe generally and certainly to that of Britain.
The point has just been made that the banking sector is a rather special sector. I can tell you one respect in which it is very special: people get paid enormously more at the top than in any other sector. That is what is special about it. It is not special in the sense that there has not been a huge growth in the disparities in all the rest of the sectors. Anybody close to industry will know that two things happen when pay at the top gets to 30, 40 or 50 times that at the bottom. The first is that there is a crossover effect in the rest of the sectors—in construction, mining or any other sector. Banking does not live in a world of its own, although in some respects, of course, it does. Some people say that the banking industry is Britain’s biggest industry. When we were young, to say that banking was Britain’s biggest industry would have been thought a rather risible thing to say. Yet that is infecting the rest of the economy. A lot of the best talent used to go into the Civil Service. Now, not as much of the best talent is going into the Civil Service. Not as much of the best talent is going to many of the sectors that had their share of the best available talent years ago.
While we are on the subject of top people and talent—and what you might call inherited wealth, which is part of this question—the fact is that we are failing to bring out the best of the talents and opportunities of everybody else in society. So when one talks about 1%, one immediately says, “What about the 99%?”. I think that for this Government to ally themselves ideologically with the interests of the 1% at the top is going to prove a fatal mistake.
The clock is ticking, and those of us who now believe what this side of the House believes, in the challenges that we will face in two years’ time there must be some connection between our policy of worker representation on boards and what is happening in the rest of the company. You do not need to be Einstein to figure out that if there is some new structure of boards, there has to be some substructure. You cannot have a superstructure without a substructure. Whether it is through information and consultation bodies or any other way, it will be a major challenge to get it right this time under the next Labour Government. It is rather academic from the point of view of Members opposite in the Conservative Party, but it is a very interesting pointer to the future that this is one of the elements in the architecture that will be built.
Lord Blackwell
My Lords, I have listened very carefully to the speeches of the noble Lords, Lord Mitchell and Lord Lea of Crondall. While they made some interesting points, I did not find that either of them had any compelling rationale for this particular amendment.
We have all agreed that the remuneration policy for those at the top of companies has to be transparent and has to be voted on and agreed by shareholders; that is only proper. As for the low-skilled workers on the minimum wage, that is a matter which is voted on by Parliament in setting the minimum wage. However, I am not sure that to juxtapose those two things in a company’s annual report provides any useful information. Let us consider company A, which, we hope, does a great job for the community in employing lots of people, including low-skilled workers, on relatively low wages. Offering them employment helps them to come off benefits and thus creates a great benefit to society. Company B, operating in the same sector, decides to ship all those jobs off to India. Which company would shareholders—or, indeed, society as a whole—think is doing a better job? I do not think that juxtaposing how many people a company successfully employs at the lower end of the skill level compared to the top end, and comparing that with other companies, gives any useful information about whether those at the top of the company are being rewarded appropriately.
Lord Lea of Crondall
The noble Lord asked a direct question about the connection, because of the minimum wage, between the bottom and the top. One phrase that gives a clue to the connection is, “We are all in it together”. Does that not give any sort of clue to the noble Lord?
Lord Blackwell
That is precisely my point. I would have thought that the company that successfully employs lots of people at all skill levels, including those on the minimum wage or at a low-skill level, is helping society and helping us all to prosper together.
Another example is a company in a consultancy that employs only PhDs. The ratio between the top and the bottom in that company may be relatively small. Is that a better company than one that employs lots of people on the minimum wage? I think that this information is almost entirely irrelevant to any judgment about whether the pay at the top of the company is appropriate. That is a relevant question, but this information is potentially misleading and potentially encourages those viewing the annual report to take a misguided view of the appropriateness of the pay policy within the company. I do not think a case is being made for it.
Lord Kerr of Kinlochard
My Lords, I understand the general points made the noble Lord, Lord Mitchell, and I have considerable sympathy for them. However, I do not understand their relevance to Clause 71, which is about remuneration reports. The problem with remuneration reports is that the degree of detail now required in them means that they have become rather long and complex. An additional requirement to include a comparison between payments made to two categories of staff, neither of which is within the scope of the remuneration report, would add further complexity without the justification of relevance. Remuneration reports are about the remuneration of directors and senior executives. The amendment calls for the inclusion of factual material on individuals who are neither directors nor senior executives.
Such complexities have costs. Take two plcs with 70 and 100,000 employees across the world in, say, 50 to 85 countries. I am thinking of two examples which I know well. Is it really necessary, for the purposes of the remuneration report, to require them to establish with each of their businesses in each country where they operate which are the lowest pay rates paid, presumably to the most junior, temporary staff of that country, then take appropriate exchange rates and try to work out the unluckiest 10 in any of their operations anywhere across the world? The remuneration report is about the directors and senior executives. The purpose of a remuneration report must surely be to explain to shareholders the company’s remuneration policy and the result that it has produced for the senior individuals that the report is required to cover, and to do so as simply and clearly as possible. Would this amendment assist that? I do not think so.