Company Law Reform Bill [HL]

My Lords, I welcome my noble friend’s amendment, as it gives me an opportunity to put on record the Government’s strong support for the principle that companies should be sensitive to pay and employment conditions elsewhere in the group when taking decisions about directors’ remuneration. It has long been accepted that companies should—I quote from the Greenbury code of best practice of July 1995—"““be sensitive to the wider scene, including pay and employment conditions elsewhere in the company””." The Greenbury report explained why that is so important. It stated:"““Paying over the odds is incompatible with the fiduciary duty of directors to act in the company’s best interests. It can spread through normal differentials to other levels in the company, thus increasing the cost base and impairing the company’s ability to compete. It can cause resentment among staff and damage the company’s reputation””." Those points are as valid and important in 2006 as they were in 1995. That is why the combined code has a supporting principle that the remuneration committee should,"““be sensitive to pay and employment conditions elsewhere in the group, especially when determining annual salary increases””." I entirely agree with my noble friends about the significance of that principle. It should certainly not be seen by companies as window dressing. It is important that companies analyse the general pattern of remuneration in the enterprise and take that into account in determining directors’ remuneration. It is also worth making the point that many investors share that view. Indeed, the National Association of Pension Funds guidelines state that it is,"““good practice for boards to disclose in their annual report the average total annual remuneration of executive directors and the average total annual remuneration of non-board employees in the financial year””." While we do not accept the amendment, the Government will be consulting on all reporting regulations, including those relating to the directors’ remuneration report, at the end of this year. I am happy to give a commitment that, in doing so, we will consult on how companies might report more effectively on the way in which they take pay and employment conditions elsewhere in the group into account in deciding directors’ remuneration.