Company Law Reform Bill [HL]

My Lords, while my noble friend has characteristically moved the amendment in a somewhat wide context, and the noble Lord, Lord Sharman, has responded in kind, I would like to point out the amendment is, in fact, quite limited. It is not like the groups of amendments that we discussed last night and earlier today which would significantly have changed the duties of directors. I had some sympathy with some of those amendments, and my name was attached to some of them. For example, I regret the withdrawal of OFR. On the other hand, I appreciate that the Government have moved some way to recognise the concerns that the noble Earl, Lord Sandwich—who is no longer present—emphasised today. However, the issue that we are discussing is much narrower and falls within the existing legal requirements for directors’ duties. There is a requirement to report on remuneration and to have remuneration committees dealing with certain matters. As the noble Lord, Lord Sharman, said, this matter is subject to regulation by the FSA. It is also subject to codes of practice of the FSA and of various City and other institutions. The problem is that with that even with that degree of attention and a significant amount of transparency—indeed, one could argue that there is too much transparency in some remuneration committee reports, at least in the sense of their being far too detailed for anyone to comprehend—the report does not convey how those directors’ remunerations have been determined in relation to what else is going on within their company. The House will recognise that both my noble friend Lord Lea and I come from a trade union background, so in a sense we represent the view of the employees within the individual company. They would like to know how their bosses determine their own pay and to what extent they take into account the pay that they are giving to their employees, both in the main company and in subsidiaries. However, the point is actually wider than that, as my noble friend Lord Lea said. If it is the case that the executives of leading companies are going way ahead of the general level of remuneration in the rest of the economy, let alone in the rest of their company, that is damaging to social cohesion and leads to a degree of suspicion and accusations of corruption from the rest of the population. We should be humble enough to recognise that occasionally similar doubts and accusations arise in relation to politicians; namely, that effectively we are a cabal of people who are paying one another large sums of money for not very obvious performance-related outcomes. That case can be made in relation to directors and the way in which remuneration committees have turned out. We have had committee after committee looking at this, but none of them has specified that there should be in the remuneration report a requirement that the directors set out how they have taken into account everyone else’s wages and how they determined them, and that they have at least attempted to justify the level of remuneration for the directors in the light of that information. This is a fairly simple point, but it goes to the heart of how you sustain both a degree of coherence and loyalty within a particular company and a degree of social coherence, respect, understanding and equity in society as a whole. While this is a narrow point, which builds on what is already there, it is very important for the reputation of our larger joint stock companies and limited liability companies. I strongly support the amendment that has been moved by my noble friend, and I hope that the Government will take into account our arguments, if not today, at least in further stages of the Bill.