(12 years, 2 months ago)
Commons ChamberI thank the hon. Gentleman for his positive comments. It was useful that he started with a bit of history. It is worth recalling that in the 13 years of Labour Government, seven Secretaries of State occupied my job—eight if we include Lord Mandelson twice. In the seven years that followed the introduction of advisory votes, none of my predecessors thought it necessary to introduce a binding vote on pay, despite there being, as the hon. Gentleman acknowledged, a continuing trend for top pay to diverge from the performance of companies, let alone from the pay of employees.
The hon. Gentleman continues to raise the issue of workers on boards. I think that having workers on boards is an excellent idea. The question is whether it should be mandatory. If it was such a good idea, why did none of my predecessors do anything about it? Most of them were nominated by trade unions and one was a distinguished general secretary of a trade union. None of them took any action to implement the measure that the hon. Gentleman is demanding. I welcome employee participation and will expect a report back from companies on whether they have consulted their employees on pay.
There will be an annual vote if pay policy changes. The hon. Gentleman seems to find a problem with the idea that if nothing changes, a policy can last for a three-year period. I would have thought that he would see the obvious attraction of a system that encourages companies to think long term. As I understand it, he has just copied my example in setting up a report on long-termism. We want companies to think long term. Should they choose to use the three-year process and leave their policies unchanged, it would put a stop to the ratcheting of annual pay awards. That process would be a considerable improvement should companies choose to use it, but for the most part, as I have indicated, the vote will take place annually.
I personally believe that it would be desirable to have a 75% vote threshold in the advisory votes, and the FRC will pursue the requirement of a statement to the market. As the hon. Gentleman will know, the FRC is an independent body, and I do not mandate it, but I believe that having a higher threshold would be desirable in that case.
The hon. Gentleman specifically asked what the FRC was doing to strengthen overall corporate governance. It is pursuing investigations on a variety of issues such as how companies should formally respond when a significant minority oppose a pay vote, requiring all companies to adopt clawback mechanisms and the extent to which executives should serve on remuneration committees in other companies. Those are big issues, and subject to the FRC’s recommendations we will have considerable improvements in the corporate governance system.
These are radical changes, and I would have thought it would enhance the hon. Gentleman’s reputation if he was gracious enough to acknowledge that a major set of reforms has been undertaken.
Banks have taken excessive risks, for which we have all paid. The Treasury Committee is now investigating that and has heard extensive evidence that senior bank executives have been rewarded excessively for taking those risks. What in these proposals specifically addresses the problem of systemic risk in our major financial institutions?
As the hon. Gentleman knows in his important role as Chairman of the Treasury Committee, a separate set of regulations introduced by the Financial Services Authority deals with the link between the types of pay package that are introduced and systemic risk. Excessive bonusing has undoubtedly had an effect in the past, and as a result of the experience of the financial crash, those regulations have been tightened. Banks, as public limited companies, will be governed by the new regulations, and I imagine that after their experiences shareholders in our leading banks will want to ensure that forward-looking pay policies take proper account of the systemic risk of their institutions.