Directors’ Pay

Lord Razzall Excerpts

Wednesday 20th June 2012 Lords Chamber

[Lord Razzall]

My Lords, I thank the noble Baroness for introducing this important Statement. I have three questions. First, does she accept that the Statement applies almost entirely to companies owned and run with employees in the UK? What is her view on the large number of FTSE 100 companies that have shareholders and employees primarily outside the United Kingdom? The Statement says that there has been a broad national debate about shareholder activism. Has any consultation taken place with companies run from Kazakhstan or the United States that are UK FTSE 100 companies? How does she think these proposals will go down with them?

Secondly, I will touch on the question of exit payments that was raised by the noble Lord, Lord Stevenson. I support and understand the Government’s position that they do not wish shareholders to have the right to veto the individual contracts of people who are taken on for employment, but I am not entirely sure that that should apply to exit payments. Contrasting the Statement in my left hand with the Explanatory Notes in my right, there seems to be a slight confusion. The Statement says that on exit payments, companies will not be able to pay more than shareholders agree. Will the Minister confirm that that is not exactly true? The proposal is that the company will say something like, “We will never pay more than two years’ salary in an exit payment”, or, “We will never pay more than the contractual entitlement of the employee”, or, “We will reward performance but not lack of performance”. Does the Minister agree that the Statement is slightly misleading in suggesting that shareholders have a right to veto exit payments?

The third point is slightly facetious, and the Minister may well have answered it already. As we know, her Secretary of State has been described in the Daily Telegraph by Mr Adrian Beecroft as a crypto-socialist. The criticism that the noble Lord, Lord Stevenson, has made has probably proved that that is not the case. Will the Minister confirm that, as far as she is aware, the business community broadly welcomes these Statements and regard them as coming from a Secretary of State who is significantly pro-business?

[Baroness Wilcox]

In answer to my noble friend’s first question, company law captures only UK companies. However, overseas companies must comply with the listing rules. We will work with the FSA to consider how the listing rules need to change in view of these reforms. I hope that is a helpful answer. In answer to his second question, companies will be able to make exit payments only within the envelope that shareholders have approved and it will be up to the shareholders to agree.

I cannot imagine that my Secretary of State was ever called a crypto-socialist by anybody—was he? I know that business very much welcomes what we are doing at the moment. Shareholders and business welcome it, and it is with them that we have been talking and negotiating to make sure that we can put this into the Bill that is coming up and that we can introduce secondary legislation so that we can get this moving as soon as possible. Everybody seems to agree that things must change.