The City of London Corporation has appealed to the government to leave high wages in place for “talented individuals” after Vince Cable announced moves to tackle excessive boardroom pay.
The business secretary told MPs that shareholders should have greater powers over executive pay and there should be more transparency in the process. Cable said more diverse boards and remuneration committees should be created.
Top pay increased by five-times the amount of the average worker’s wages last year, which Cable labelled a “clear market failure”.
However, City of London policy chairman Stuart Fraser said the owners of businesses should be left to determine pay and that it was right to reward good performance with high wages.
Fraser said: “The owners of businesses should be entirely responsible for determining pay awards to managers and other staff they employ.
“The government has recognised this by outlining plans to give new powers to shareholders of all companies that would enable them to veto ‘excessive’ boardroom pay at Britain’s top businesses. Of course, shareholders already have considerable powers in this area but we need to encourage them to engage in the scrutiny of this process more actively.
“In a global marketplace, UK-based firms need to pay a competitive rate in order to retain internationally mobile staff – or equally crucially attract new, talented individuals. High pay for success is perfectly acceptable, it is high pay for failure that needs to be addressed.”
Cable presented the plans in full to Parliament a day earlier than expected after Labour tabled an urgent question. He said while Westminster should not “micro-manage” businesses, it could takes steps to ensure there is greater transparency, board diversity, more shareholder power and sharing business best practice.
The Liberal Democrat said there was “no magic bullet” for solving the problem, but added: “We cannot continue to see chief executives’ pay rising at 13 per cent a year while the performance of companies on the stock exchange languishes well behind.”
If the proposals are brought in, shareholders and workers should be able to see easily and clearly what people were paid. Investors would be able to challenge boards more vociferously and hold them to account through a revised set of voting rules.
Larger companies should consult their workers on pay, Cable suggested, while businesses would also need to explain how they have taken employees views into account under the proposals.