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House of Lords

Wednesday, 26th June 1996.

The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.

Prayers--Read by the Lord Bishop of Ripon.

Lord Bingham of Cornhill

The Right Honourable Sir Thomas Henry Bingham, Knight, Lord Chief Justice of England, having been created Baron Bingham of Cornhill, of Boughrood in the County of Powys, for life--Was, in his robes, introduced between the Lord Donaldson of Lymington and the Lord Woolf.

Company Directors: Remuneration

2.44 p.m.

Lord Dormand of Easington asked Her Majesty's Government:

    What further action they are taking to restrain the remuneration paid to senior directors in private companies.

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie): My Lords, the Government do not intend to intervene in what is essentially a matter for companies and their shareholders.

Lord Dormand of Easington: My Lords, will the Minister confirm that one of the expressed aims of this Government is to bring about a classless society? Does he agree that two of the essential ingredients of such a society are fairness and justice? How can the Government reconcile the vast salary increases and other payments that have been and are being made with the increases that some people receive which normally barely cover the rate of inflation, to say nothing of the great poverty which exists in some parts of the country? In those circumstances, is it not essential, in spite of what the Minister said, that radical changes should be made?

Lord Fraser of Carmyllie: My Lords, the noble Lord quotes what the Prime Minister said on taking up office; he also said that remuneration should be justified by company performance and affordability. If the noble Lord believes that a classless society is indeed desirable, I am sure that he must view with concern the severance packages that members of the AEEU have settled for themselves which allow a number of people to receive up to £500,000. I would guess that they would attract the same strictures from him.

Lord Clark of Kempston: My Lords, does not my noble and learned friend agree that most private companies are family businesses and the shareholding is

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very narrow? It would be intolerable if the government of the day intervened to set the remuneration of directors in a family business.

Lord Fraser of Carmyllie: My Lords, my noble friend makes a good point. I am sure he agrees with our proposal to amend the provisions of the Companies Act in relation to the disclosure requirements concerning directors' pay and pensions to bring them into line with the recommendations that Greenbury made and which have already been implemented or are about to be implemented under the Stock Exchange listing rules. Requiring greater disclosure and transparency is one thing; an attempt to limit what people should be paid is quite another.

Lord Jenkins of Putney: My Lords, should not the Government be congratulated upon their loyalty to the first principle of capitalism? I refer to the prosperity of the few at the cost of the many.

Lord Fraser of Carmyllie: My Lords, I thought that that was a policy now adopted on the Benches opposite. We are looking at companies that have been and are continuing to be successful. How the directors are remunerated should be justified by the company's performance and affordability. It would certainly not do anything for the companies' or the country's economy if governments sought to intervene.

Lord Marsh: My Lords, does not the Minister agree that a lot has changed in recent years? Nowadays shareholders, commonly called "owners", and particularly institutional shareholders, take a considerable interest in the remuneration of directors, to the point of removing them from office from time to time. Does not the Minister further agree that attempts by both parties to introduce incomes policies have had one thing in common--they have been disastrous failures?

Lord Fraser of Carmyllie: My Lords, the noble Lord speaks with greater experience of these matters than I can. I agree with him. On a more serious basis, we welcome the action of the Stock Exchange in introducing new listing rules to require compliance with the Greenbury recommendations. It is right that shareholders should know what is being paid to a director and that there should be new rules brought forward for disclosure of incentive schemes in the longer term for directors. I understand that that is to take place from mid-September, and it is to be welcomed.

Lord Hailsham of Saint Marylebone: My Lords, can my noble and learned friend clear up a possible misunderstanding? The expression "private companies" as used in the original Question has a definite and restricted meaning in company law. Does his Answer apply to all companies, the shares of which may be privately owned and which are commonly called "public companies", or is it restricted to the narrow and proper meaning of the term "private companies"?

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Lord Fraser of Carmyllie: My Lords, as always my noble and learned friend reads the Question. My Answer was directed to the broader proposition and applies to all companies.

Earl Russell: My Lords, does the Minister agree that if anybody really earns such huge sums of money, he cannot possibly have time to spend the money?

Lord Fraser of Carmyllie: My Lords, I could make a very good shot at it!

Viscount Caldecote: My Lords, my noble friend is obviously right in saying that the remuneration of directors and senior managers is entirely a matter for the shareholders. Does he agree that the real problem is the very large sums of money paid to those who are dismissed for not having done their job properly?

Lord Fraser of Carmyllie: My Lords, those are the matters that I referred to when I made mention of what some members of the AEEU intend to offer themselves as regards severance pay. What is probably more startling is that the Daily Mirror has been whipping up public opinion to a frenzy over the issue of "fat cats". My noble friend may be interested to know that the managing director of Mirror Group Newspapers--and that newspaper is not always an accurate source of information--struggles by on a mere £693,000 per annum.

Baroness Farrington of Ribbleton: My Lords, does the Minister agree that the Government should have concern for circumstances where directors are paid at a high level and that, in the absence of minimum pay rates, the Government are paying public money in the form of family credit out of the public purse because companies are paying below poverty level wages? How many times do the Government check the high levels of pay given to those at the top while they use taxpayers' money to subsidise family credit?

Lord Fraser of Carmyllie: My Lords, that is some considerable way wide of the Question on the Order Paper. I was asked whether we would intervene in the remuneration paid to senior directors. It is wholly inappropriate that such a course should be followed.

Lord Eatwell: My Lords, is the Minister aware that the greatest public disquiet has been generated by the enormous increases in salaries paid to the directors of privatised but previously public utilities? To do him credit, the increases have been condemned by the Prime Minister. Now that it has become clear that the privatisation of British Energy will cost the taxpayer £7 billion, how much of that sum in taxpayers' money will end up as higher salaries for the directors of the company? Does the Minister consider that to be an appropriate use of taxpayers' money?

Lord Fraser of Carmyllie: My Lords, I am grateful for the noble Lord's appreciation of the stance that the Prime Minister has taken on this matter. As regards

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British Energy, it has made it clear publicly already that it intends to abide by the Greenbury rules. That is to be welcomed.

I waited for the noble Lord's intervention with keen anticipation. He may recall that Mr. Ian McCartney, his colleague in another place, thought that it was a case of breathtaking double standards for executives to be able to cash in a six-figure golden handshake and share options. Double standards are being practised as regards redundancy, and that is a national disgrace. Given his reputation for integrity, I hope that the noble Lord will extend that criticism to the AEEU as well.

Lord Dormand of Easington: My Lords, the Government have said on more than one occasion that their policy is to try to persuade companies not to pay such vast increases, but that has manifestly failed. Why cannot the Government do something about that now? I did not raise the question of the trade unions; they are not private companies. But I do not dodge it. I disagree with what the unions propose as much as I disagree with what is happening in the private sector.

Lord Fraser of Carmyllie: My Lords, I am grateful to the noble Lord. There is a regrettable absence of agreement on that matter in another place. I have made it absolutely clear where the Government stand on the issue. We propose to amend the Companies Act disclosure requirements to bring them into line with the Greenbury rules. But it is a matter for shareholders to determine, and we are giving them the opportunity to be better informed in order to make the right decision.


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