No legal curbs on fat cat pay

Feb 26 2004 by Brian Amble Print This Article

Controversy surrounds the decision by the UK government not to introduce new legal curbs on executive pay and stop directors receiving huge payouts if they are fired for poor performance.

Trade and industry secretary Patricia Hewitt said that the growing pressure brought to bear against excessive remuneration packages by large institutional investors meant that further legislation to tackle so-called ‘rewards for failure’ was unnecessary.

"I have considered very carefully the question of whether to introduce further legislation in this area, and have concluded that this is not necessary at this stage," she said in a written statement.

Regulations already introduced that require companies to produce a detailed annual director pay report and to submit it for shareholder approval at the AGM had made an "immediate impact", she said.

The Department of Trade and Industry would continue to monitor how well companies and shareholders were dealing with the issue and assess how well they were being applied, she added.

"I am clear that the best way forward is through the application and development of best practice in negotiating contracts which deal with performance issues effectively," she added.

The Confederation of British Industry (CBI) welcomed the decision not to legislate and said that the government’s approach was a proportionate response.

"The government is right not to regulate," said CBI director-general Digby Jones. "It would be totally impractical for the law courts to pass judgment on whether a chief executive has failed.

"Now business must show that it is serious about putting its own house in order. We cannot allow the occasional incident of reward for failure to harm the reputations of all our best companies."

The Association of British Insurers, which represents the major institutional investors, agreed, describing the Government's response as "pragmatic and sensible". Legislation, it added, would only "spawn an industry of lawyers looking for loopholes."

But corporate governance consultants PIRC said that the government’s response was “totally inadequate". PIRC’s managing director Alan MacDougall, said: "The government's response condemns shareowners and employees to a continuing spectacle of undeserved personal remuneration awards with no effective restraint."

TUC general secretary Brendan Barber was also critical of the decision.

"British boardrooms have an impressive record of evading legal restrictions on executive excess by promising to get their own house in order, but still offering pay deals,” he said.

"Shareholders are beginning to bite, but they need stronger teeth. Votes against platinum parachutes at company AGMs are not binding, and fund managers, who represent millions of pension scheme members, do not have to publicly disclose how they vote."