UK: executive pay - the Government's position

Following his letter published in The Times newspaper last week, Lord Wedderburn, Emeritus Professor of commercial law at the London School of Economics, has raised the issue of executive pay in the House of Lords. Lord Wedderburn asked the deputy chief whip, Lord Davies of Oldham, what advice the Government had given to companies in the private sector on pay increases and what controls they proposed to introduce. The following are amongst the comments Lord Davies made in reply to Lord Wedderburn and others (HL Hansard, 30 October, col 1683):

... pay levels in private sector companies are a matter for those companies. The Government have consistently made it clear that there should be effective linkage between pay and performance and that exceptional rewards for mediocre performance are not in the interests of companies, their shareholders or the United Kingdom as a whole. 

... On the more general issue of companies, from 6 April next year, a new provision will require quoted companies to report in their directors’ remuneration report on how they have taken pay and employment conditions into account when setting directors’ pay. Directors’ pay should be set only by non-executive directors, not by those who benefit from it themselves".

The new provision referred to by Lord Davies was introduced by the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008. Regulation 11 requires the remuneration reports of quoted companies to contain certain information set out in Schedule 8 and including (at paragraph 4):

Statement of consideration of conditions elsewhere in company and group

The directors’ remuneration report must contain a statement of how pay and employment conditions of employees of the company and of other undertakings within the same group as the company were taken into account when determining directors’ remuneration for the relevant financial year".

Regulation 2 provides that the foregoing statement is required in respect of remuneration reports for financial years beginning on or after April 6, 2009.