Public anger at the excessive pay awards and massive bonuses handed to themselves by the executives of newly privatised utilities led to the shorthand phrase ‘fat cats’ during the last Conservative government.
Now, the so-called fat cats are back again, with the senior directors in the UK’s largest 350 listed companies having received average pay increases of 18%, with the executives of the utilities not far behind with 15%.
And this at a time when the chancellor of the Exchequer insists public sector workers should not get more than inflation, and where the health secretary Frank Dobson thinks there should be more for nurses.
Margaret Beckett, before her departure from Trade and Industry, announced a wide-ranging review of company law. This would take three years to implement and produce legislation in the new parliament after the next General Election.
This review period is likely to be shortened in the light of the latest outcry at directors’ pay awards, and the government should look again at some of the proposals it floated while in Opposition.
Labour in Opposition wanted an independent remuneration committee, with shareholders directly electing an executives’ advisory committee. Also, shareholders are to vote annually on the committee’s recommendations, and the company is to publish and operate a code of best practice to maintain the committee’s independence.
Now, the corporate governance codes of Cadbury, Greenbury and Hampel have been rolled into one and placed as an addendum to the Stock Exchange’s yellow book. They are not mandatory, however, and do not apply to those newer, faster growing and technologically oriented companies quoted on the NASDAQ and EASDAQ exchanges.
As the new secretary of state for Trade and Industry, Peter Mandelson may wish to shorten the review period and act faster on a new Companies Act that would put mandatory responsibility on shareholders to challenge directors’ pay – without creating an old-style incomes policy at the same time.
Stuart Bell is Labour MP for Middlesbrough and adviser to Ernst & Young
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