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January 13, 2012 / politicsbitesize

Will changes to executive top pay come soon enough?

Credit where credit is due – David Cameron has begun 2012 with commendable words on the issue of executive pay packages. Over the weekend of Jan 7-8, 2012, in an interview with Patrick Hennessy for The Telegraph and with Andrew Marr on his show, the Prime Minister asserted his position regarding the curbing of excessive pay. The High Pay Commission’s report, as previously acknowledged on Politics:bitesize, made some recommendations for dealing with unequal and high pay and a few of these have found their way into Mr Cameron’s rhetoric.

After watching the interview with Andrew Marr it seemed that the main objective of his statement was similar to that of his New Year speech. He wants the public to understand that he ‘gets it’ and he highlights this when he claims to understand that when companies pay their top executives very high salaries it gets people hot under the collar. Yet, it is more than simply high pay schemes that annoy people: it is executives who receive huge sums in bonuses even when the companies they work for are actually failing. He states:

Payments for failure, those big rewards when people fail, I think, that’s what makes people’s blood boil. And again, it is taking money from the owners of the company, the shareholders, everyone with a pension in Britain and also the employees as well. That’s what is wrong. That’s what needs to change and that is what we are going to be addressing directly this year.

His allusion to the High Pay Commission’s report comes when he refers to the need for clear transparency of remuneration deals by publishing the amounts paid out and the requirement for shareholders to vote for/against any pay rise or bonus payout. Mr Cameron goes on to state that the government will this year move to provide shareholders with a more effective veto on both high pay packages for executives and big handshakes for business leaders when they leave a company even if that company is doing badly at the time. The shareholder’s veto will become binding rather than simply advisory, as it is at present.

In his interview, Andrew Marr asks about the High Pay Commission’s suggestion that pay ratios are also to be published. It would be good to see the inequalities and the discrepancy between the highest and lowest paid people in a company. The Prime Minister’s response was open, fair and surprising. He answers the question by telling us that the Coalition Government have already cut ministers’ pay by 5% and frozen it for the whole parliament. They have also ‘published all the pay levels in local governments so those so-called ‘fat cat’ salaries among some local government chief executives are coming down.’ David Cameron then goes on to suggest that the difficulties with enforcing the publishing of pay ratios is that in some companies (he gives Goldman Sachs as an example) all the pay is so high that the ratios are small, which means the results would seem fairer than they actually were.

Fairness is high on the Prime Minister’s 2012 agenda. All his tough talk on high pay is intended to emphasize his desire to make Britain a fairer place to live. By implementing legislation designed to ensure that shareholders’ votes on high pay hold sway and transparency in top pay packages he presents his agenda as achievable.

But is his rhetoric enough? Well, by Monday morning the good that David Cameron’s rounds of interviews did was undone with the news that the RBS Chief, Stephen Hester, is to be awarded a £4.3m payout even though the share price of RBS has fallen by half in a year. Here we have a ‘fat cat’ who is getting rewarded even though his company is failing – a company whose largest shareholder is the UK taxpayer! I bet David Cameron’s blood was boiling along with the rest of us. As the binding shareholders’ veto isn’t legislation yet, what can be done?

It can be suggested that politicians aren’t really going to help anytime soon; it is more a case of them providing lip service to the notion of helping. So what can we do to help ourselves? Dominic Lawson, in his article in the Independent, suggests it is the people who need to ‘do something’ about this unfairness. The sub-heading of his article, ‘Perhaps a mass campaign to switch accounts from the bank with the highest-paid CEO?’ got me thinking. Instead of waiting for the political merry-go-round to, well, go around, perhaps a more practical approach is required. If enough customers of an offending bank move to one with more morals or ethics then the excesses at the top of the industry will have to stop. If high numbers of people remove money from a bank in protest at high pay then that bank itself is likely to run into trouble. Maybe it is time for actions rather than complaints: a time to start thinking with our feet.

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