Should Vince Cable apply further restrictions to limit executive pay?

Vince Cable Screen Shot

Should Vince Cable apply further restrictions  to limit executive pay?

This week’s news has seen Business Secretary, Vince Cable, encourage Britain’s leading businesses to crack down on bonuses or face more legislation that limits executive pay. Cable can be seen in this clip on the BBC explaining his hopes that banks and companies such as Barclays have listened to pressure from the people who own the banks and exercised responsibility and long-term thinking.

Richard Pipe, Director of Searchlight Investments gives his views on bonus related pay and the need to win back the ‘trust lost’:

“Whilst I have no issue with top executives being suitably rewarded for their hard work and dedication in running and building the strategic direction of the UK’s top companies, the salaries, benefits, bonuses, shares, share options and generous allowances they receive are not always in line with the success they achieve.  In many cases, executive pay packages have become bloated and I think that one of the reasons is the distance between the board and the shareholders.  Shareholders have some power to influence executive pay and a few decades ago individual shareholders would collectively have some significant clout. “

The trend towards collective investments (units trusts and OEICs) means the major shareholders, nowadays are represented by the fund managers who have taken a back seat on the issue of pay.

Richard continues: “Fund managers should be representing the views of the investors in their funds.  I’m pretty sure that most people feel sickened when reading about executives being rewarded for failure (and there are too many examples of this over recent years).   I do not want Vince Cable and other politicians to take “further action” to restrict something that should be driven by market forces, but I do think that shareholders and their representatives (and that includes Searchlight Investments) need to play their part.”

It’s good to see, that Barclays shareholders got their voice heard, and certainly actively showed their disapproval of the bank’s bonus structure, with shareholders both large and small protesting at the Barclays AGM. In fact, one in three shareholders did not support the bank’s remuneration report, which showed that bonuses rose 10% despite a 32% fall in profits. The Guardian pointed out that annual investor meetings are usually dominated by private shareholders who hold small amounts of votes. But on this occasion, Standard Life Investments, which owns circa 2% of Barclays, spoke out to say it had voted against the pay deals.

 

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