The simple top-lines on Vince Cable’s measures to curb executive pay sound good: 10 out of the 12 recommendations from the (unofficial but cleverly named) High Pay Commission implemented and condemned by Conservative MP Peter Bone as being “left wing claptrap”.
The details, however, really highlight the limitations of the focus on executive pay. They are all welcome small steps, but there is very little evidence they will make much of a difference. And if they do, it may be too boost rather than cut executive pay.
More transparency? Good, but the evidence that transparency reduces rather than increases pay is fairly weak.
Mandatory shareholder votes? Good, but it’s not as if the current advisory votes are being ignored. As Robert Peston points out:
For about 10 years shareholders have had much more influence on pay in the boardroom. This has coincided with a quadrupling in top executives’ pay, whereas company share prices as measured by the FTSE100 index have gone nowhere and average earnings for the rest of us have increased just a few percentage points a year.
More diversity amongst board members? Good, but the evidence of the benefits such diversity brings is about company performance rather than pay. And if more diversity brings better company performance then, as with transparency, a move sold as curbing pay may well end up increasing it instead.
But then levels of pay are only one part of what should be a bigger picture: there’s also the matter of performance (is pay justified by results?) and the matter of how much money ends up in people’s pockets.
On the latter, Vince Cable and the Liberal Democrats have a rather good story to tell – blocking the Tory push to abolish the 50p rate, ensuring that capital gains are taxed at a level closer to that of income (important given how often remuneration involves shares), cutting pension contribution tax breaks for the highest paid (very relevant for company executives) and cutting income tax for everyone else.
All that means that if you measure net pay, rather than gross pay, quite a lot has been done. But on the question of making sure pay is more closely linked to performance? That is very much a work in progress.
So today’s announcements are fine – as long as they are only part of what is done and not the only steps taken.