vallierojas: Vince Cable calls time on excessive boardroom pay and bonuses

Monday, September 19, 2011

Vince Cable calls time on excessive boardroom pay and bonuses

Business secretary champions 'responsible capitalism' model, forcing companies to justify pay policies in their annual reports

Vince Cable will set out plans on Monday to give workers and company shareholders rights to call time on spiralling boardroom pay as part of a Liberal Democrat-led drive to champion "responsible capitalism" and retain wavering public support for the coalition's austerity measures.

The business secretary will also announce that all directors of firms listed on the London Stock Exchange will be required to set out in a comprehensible form the total value of their salary, pensions, share schemes and bonuses.

Remuneration committees will also be forced to explain in annual company reports why they have paid bonuses that are not justified by performance, or are out of line with their pay policy. Cable will argue that for Britain to be "turned around" requires giving people a sense of a shared society. That means, he will say, "reducing our appalling inequalities of income and wealth, and creating a responsible capitalism. I want a real sense of solidarity, which means a narrowing of inequalities."

Cable's political authority suffered after his leaked attack on Rupert Murdoch, the News Corp chairman, last year but as the Murdoch empire has waned, his own standing has been restored, emboldening him to push his distinctive social democratic agenda on banking, Keynesian growth and pay inequalities.

Monday's proposals are likely to delight Lib Dem delegates, who on the first full day of debate supported a promise by the party president, Tim Farron, that divorce from the Conservatives was inevitable within three to four years.

A succession of senior figures also vowed they would not countenance an end to the 50p tax rate on those earning �150,000 or more unless the lost revenue was recovered by some form of wealth tax. Farron described abolition of the 50p rate as "morally repugnant" and "economically witless".

Cable's plans to name and shame "greedy" directors will be complemented by plans for shareholders to be given a legal binding right to block excessive pay. Currently, remuneration committees can ignore shareholder votes, but Cable will need to overcome technical issues set out in a discussion document to be published today before making them binding.

He will also suggest diversifying membership of remuneration committees to include employees, possibly union members, saying the current disconnection between pay and long-term performance shows "something dysfunctional about the market in executive pay and long-term performance, or a failure in corporate governance arrangements".

He is not proposing to set caps on pay or the ratio between highest and lowest paid workers. He will say: "People accept capitalism, but they want responsible capitalism. I want to call time on payouts for failure."

Cable will also hint at the private pressure his senior colleagues are putting on the Treasury to find new ways to stimulate ailing demand by finding cash that could be used for "shovel-ready" capital projects such as road building.

At the last coalition cabinet meeting Lib Dems suggested the next tranche of current British debt could be issued for very long-term repayment, possibly as long as 25 to 50 years. They believe the markets would be keen to take up the offer, owing to the safe haven argument made by the chancellor, George Osborne.

Such long repayment terms would better immunise the government against retribution from the bond markets if the coalition decided to slow its deficit reduction programme. The proposal, used by the government in the 1930s, was suggested by the UK Debt Management Office in the summer and is being discussed with the Treasury. Index linked gilts of this maturity are rare.

Cable is exploring every avenue within the broad parameters of the coalition's deficit programme to address what is being seen as an alarming demand slow down worsened by the crisis inside the euro-zone.

He will broadly defend the deficit reduction programme, saying that "financial discipline is not ideological; it is a necessary precondition for effective government of left or right".

In remarks that are different in tone from those of Osborne he will refer to the government's ability to stimulate growth: "The big economic policy question is how to progress from financial stability to growth."