Boardroom Pay

From time to time we get Guardian commentators lambasting the government about boardroom pay - notably Polly Toynbee. The assessment of the Labour government is always, "you may have helped the poor with the minimum wage and re-distribution, but you've done nothing about the rich, how can you call yourselves Labour".

Actually the government has done something about boardroom pay. In 2002, they legislated to require that boardroom compensation data was published, and to give shareholders an annual advisory vote on executive pay. Britain was the first country to do this (since then Australia, the Netherlands and Sweden have also legislated and the USA is thinking about it, despite fierce resistance from vested interests).

The thinking behind this legislation was two-fold - by insisting on disclosure, the government hoped to bring public pressure to bear on excessive pay. Director's pay comes out of shareholders money - the shareholder vote was to give shareholders a say for the first time - previously directors simply awarded themselves pay and sat on each other's remuneration committees recommending pay-rises for each other.

Sadly, the shareholders have only bothered to defeat boardroom pay once - in 2003, GlaxoSmithKline shareholders voted down their chief executive's pay and forced a substantial reduction.

Government can give shareholders the power to protect their money being siphoned off them by greedy directors, but government can't force the shareholders to use said tools.

My guess is that many of the commentators frothing about boardroom pay and blaming the government are simply unaware of the 2002 legislation (lazy journalism). They should be targetting their wrath at the institutional shareholders who are palpably not bothering to defend the money of the pension and unit-trust holders they represent.

For instance there have been lots of articles about the pay of Northern Rock board members, but not one newspaper has bothered to track down the institutional shareholders who voted in favour of these pay packages earlier this year and ask them why they did so. I suppose they think it is easier to somehow blame the government, even though in a free country government can have little say over private sector pay that is essentially a contract entered into freely between two private individuals, the board executive and the shareholder. Government can't impose pay controls. The only answer is that shareholders start acting like grown-ups and start defending their money (as is their right under the law), instead of vacuously going along with everything and then complaining afterwards.