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House of Lords

Tuesday, 9th September 2003.

The House met at half-past two of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.

Prayers—Read by the Lord Bishop of Peterborough.

Directors' Remuneration

Lord Dormand of Easington asked Her Majesty's Government:

    When they expect to introduce legislation to deal with excessive payments to company chairmen and executives.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, directors' remuneration is a matter for companies and their shareholders. In August 2002, the Government introduced the Directors' Remuneration Report Regulations, which introduced for the first time the requirement for quoted companies to produce a detailed directors' remuneration report and for a shareholder vote on that report. We are encouraged by the fact that shareholders have been vigorously exercising their new rights in that area.

The options presented in the Department of Trade and Industry document, Directors' Remuneration—Contracts, Performance and Severance, published on 3rd June, are currently subject to consultation that closes on 30th September. Any further government action on the issue will be considered in the light of the responses to the consultation.

Lord Dormand of Easington: My Lords, I assume from what my noble friend says that there will be legislation on the matter. If there is, will he do all he can to expedite the introduction of the legislation? Would he agree that the Directors' Remuneration Report Regulations to which he referred in some detail, and which were introduced over a year ago, have had little or no effect on the excessive payments being made? If the Government continue to say that huge payments have to be made to attract and keep skilled managers, what does he have to say about those instances, of which there are an increasing number, of companies losing money while the people concerned get even more money?

Lord Sainsbury of Turville: My Lords, the purpose of the consultation is clearly to consult, and when we have consulted and had all the responses we shall give careful thought to them. We shall decide the appropriate way forward from there.

The noble Lord said that the regulations were not having any impact. On the contrary, it is clear that there has been a major impact. In the shareholder

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voting that has taken place, there have been some mammoth votes against directors' remuneration reports. In one case they were overturned, but in others there have been figures of 49 per cent against, 34 per cent against and 40 per cent against. Indeed, the average dissent is about 16.8 per cent. Directors will, I hope, take very seriously those votes of dissent and will take appropriate action in future to bring remuneration in line with what their shareholders believe is appropriate.

Baroness Miller of Hendon: My Lords, if after the consultation to which the Minister referred a decision is made to bring in some kind of legislation, as the noble Lord, Lord Dormand of Easington, wants, could the Minister assure the House that the Government will also introduce similar legislation to curb the remuneration of trade union leaders? Those people usually earn many more times the salaries of those which they have negotiated for their employees. How do the Government think that the outburst yesterday from Kevin Curran will help inward investment into this country on which so many jobs depend?

Lord Sainsbury of Turville: My Lords, as I said, we shall consider the results of the consultation before we decide to take action. The question of the salaries of union leaders seems to me to fall into exactly the same category. It is not the role of the Government to do as the noble Baroness suggested, because it is incredibly difficult for the Government to get involved in making decisions about the salaries of individual people and the responsibilities that they take on.

Lord Davies of Coity: My Lords, I understand that the chairman and executives of a company have a remuneration package which, as my noble friend says, is the responsibility of the company. However, part of that remuneration package is a pension provision. Is it not obscene for the chairman and executives to protect themselves with regard to their pension arrangements when at the same time they are destroying the pension arrangements of their employees? Should not some legislation be introduced to prevent that?

Lord Sainsbury of Turville: My Lords, I share the view that it is very inappropriate for company directors to be making large pension provisions for themselves at a time when they are closing down pension schemes for their employees. With the regulations in place, we are ensuring that there is greater transparency in directors' remuneration. On the other hand, we have taken action to protect members of company schemes. That is also appropriate action. It is not easy to link the two together by any simple formula, but company chairmen should be very careful about giving themselves extra pension provision in circumstances where they are closing down or greatly reducing the contribution for their employees.

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Lord Razzall: My Lords, does the Minister recognise that, as the noble Lord, Lord Dormand of Easington, has to my knowledge asked this question at least six times during the calendar year 2003, that reflects considerable concern about this issue? Will he also recognise that, as he has given an identical answer on all the six occasions on which the noble Lord has asked the question, it would be easier for him to tell the noble Lord what is clearly the Government's intention—that they have no intention whatever to introduce legislation to deal with those excessive payments?

Lord Sainsbury of Turville: My Lords, I do have a sense of deja vu. The Question asked by the noble Lord, Lord Dormand, is extremely important and we take it extremely seriously. However, where one has introduced legislation to deal with a particular situation, it is totally right and appropriate first to see the impact of that legislation before legislating further. It is not true to say that we have taken no action on this. We have acted in the regulations and we have a further paper out for consultation.

Lord Wedderburn of Charlton: My Lords, is my noble friend aware that he is to be congratulated on amending his previous stance in answer to some of these questions by at last recognising that it is possible to define what is "excessive". He previously denied that possibility. Will he also pay attention to the figures released last week and to the research done by Professor Cheffins and the like? Does the Department of Trade and Industry have research to counter the view put forward by such researchers that, neither here nor in Canada, has increased transparency had the effect of moderating the new rent extraction by company executives and senior managers? Will the Government do something to introduce regulation against excessive pension payments, which my noble friend mentioned, to directors who are currently cutting the pension rights of their workers?

Lord Sainsbury of Turville: My Lords, I think that there is a complete difference between expressing a personal view that a particular salary is excessive and trying to introduce legislation to define exactly what salary levels should be. Those are two quite separate matters. One could have a very clear view that, in particular circumstances, salaries are excessive or not appropriate. It is very different to try to construct any type of legislation which would make sense in such circumstances. As for the impact of transparency, the key issue is whether transparency linked with votes on remuneration reports at annual general meetings will have an impact. My very strong view is that it will have an impact and that directors would not like to have any aspect of their remuneration reports turned down at annual general meetings.

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Foreign Doctors: English Language Tests

2.45 p.m.

Lord Campbell of Croy asked Her Majesty's Government:

    Whether the English language tests, required to be taken by foreign doctors intending to practise in the United Kingdom, are to be abolished.

The Parliamentary Under-Secretary of State, Department of Health (Lord Warner): My Lords, we have no plans to change the legal requirement for a person to satisfy the General Medical Council that he has the necessary knowledge of English before he is allowed to practise here.

Lord Campbell of Croy: My Lords, I thank the noble Lord for his reply. While foreign doctors are making valuable contributions in our health service, is it not very important to avoid any verbal misunderstandings that might endanger the lives of patients?

Lord Warner: My Lords, as I said, the GMC does not have any plans to make changes in this area. We all accept that it is essential to good patient care and relationships of trust that doctors have a high standard of language proficiency.

Lord Clement-Jones: My Lords, I wonder whether the Minister is as baffled as I am by the report of the Sunday Telegraph on this matter. The GMC consultation document to which the report referred states that the GMC considers that:

    "A high standard of language proficiency is essential for good communication".

All the GMC is opening up is the question of whether those who have qualified in countries where English is a first language—namely, some of the Commonwealth countries and others—should be exempted from the international English language test which seems to us on these Benches to be perfectly sensible.

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