Transcript of Chuka’s response today in the House of Commons to the Business Secretary’s statement on executive pay

- Check against delivery -

Mr Speaker

I thank the Secretary of State for advance sight of his statement today.

In the last decade the value of FTSE 350 companies increased by 80%, while the average total earnings of executives in those companies increased by 108%.  The evidence is clear – rewards that are not linked to success or performance have become far more frequent.

This problem has grown over the past few decades under Government’s of all persuasions.  In fact, one has to go back to 1979 to find things more in proportion, with executive pay growing by 0.8% on average in the three decades to that year.

So it is imperative that we do all we can to address this problem.

In Government, quite rightly, we did not rush to legislation – in the first instance it was right to see if legislation could be avoided.  When it became clear that this was not the case, in 2002 we made it mandatory for quoted companies to publish a separate directors’ remuneration report and we gave shareholders the right to vote on remuneration through advisory votes.

Shareholders have been exercising those rights, to their credit, with some verve this year.  This is very welcome.  Change and reform must be shareholder led and we should empower and encourage them as much as possible.  The Secretary of State has outlined his proposals to do that today.

I welcome the binding vote on exit payments and the measures to simplify pay reports to increase transparency but I have a number of concerns and questions.

First, with regard to the annual binding vote on future remuneration policy.  I have heard what the Secretary of State has said but it is deeply disappointing that, having marched us all up the hill, he appears to be marching us back down again by performing a u turn on his original proposal.

Having proposed an annual vote, he now seeks one every three years, unless – during that three years – there is a change to the policy.  Is it not the case, that this will simply incentivise Boards to draft policy as broadly as possible, so as to avoid anything other than a triennial vote?

Can the Secretary of State tell us exactly how he would define a “change” to remuneration policy?  And who will be the arbiter as to whether there has been a change of policy in each company – the Board or the shareholders?

Bureaucracy I know as been raised as an objection to an annual vote but given that there will still be annual advisory vote on the implementation of remuneration policy in the previous year, alongside other annual votes, this objection does not hold water in my view.

Second, with regard to majority required for the policy to be approved, the Government should have  been bolder and gone for a 75% threshold as opposed to a simple majority for approval.

As Dominic Rossi, the Chief Investment Officer of Fidelity World Wide Investors has said, such a threshold will ensure companies consult widely with shareholders prior to a vote, it would give companies a clear mandate, and the need for a clear majority would also encourage all shareholders to express their views.  Why does the Government not take heed of this advice?

Third, he says employee views on pay are important.  If that is the case, why does he persist in standing in the way of introducing the requirement for employee representatives to sit on Board remuneration committees?

Fourthly, we fully support the introduction of an annual advisory vote on how remuneration policy has been implemented in the previous year.  But, can the Secretary of State clarify – when he says this will automatically trigger a binding vote on policy the following year if the vote fails, to what does he refer in that the following year – the backward looking vote which would usually have been advisory becoming binding, or to the forward looking vote on future policy?

Finally, I also welcome the CBI’s call for the FRC’s corporate governance code to be updated but will he consider requiring the FRC to also carry out and produce an annual report on the operation of the UK Stewardship Code to keep shareholder activism, good pay and remuneration practice high up on the national agenda?