Company Law Reform Bill [HL]

My Lords, as I said in responding to previous amendments, the Government strongly support the principle that companies should be sensitive to pay and employment conditions elsewhere in the group when taking decisions about directors’ remuneration. However, this amendment would take us significantly further by involving persons from outside the company in the decision-making process. We do not believe that that is justified or desirable. The Government have consistently made it clear that directors’ pay is a matter for companies and their shareholders under UK corporate governance structure. It is also for companies and their shareholders to decide on the nature and extent of any consultation with employees or their representatives. We very much share the genuine investor concern about the need for proper accountability, transparency and performance linkage on the issue of directors’ pay. That is why the Government have taken significant action in this area. Perhaps I may briefly remind noble Lords of what has been achieved. In August 2002, the Government introduced the directors’ remuneration report regulations. These require quoted companies to produce a detailed annual directors’ remuneration report which is put to a shareholder vote at each annual general meeting. This gives the UK a comprehensive, transparent and accountable framework for directors’ pay that compares very favourably with similar market economies. As I said in reply to my noble friends Lord Lea and Lord Whitty, we will be consulting about all reporting regulations, including those relating to the directors’ remuneration report, at the end of this year as part of our implementation of the Bill. We have also consulted on the specific issue of ““rewards for failure”” in response to continuing investor concern about situations where directors leave companies that have performed poorly but receive excessive compensation packages when their contracts are terminated. The Government’s response to that consultation included announcing the monitoring of compliance with the directors’ remuneration report regulations. In January 2005, an independent report by Deloitte & Touche underlined the effectiveness of the Government’s action in making directors’ remuneration subject to closer scrutiny by shareholders. In particular, it demonstrated that companies are changing their remuneration policies and practices to reflect the link between pay and performance. That point is especially important. We want companies to act responsibly and to be sensitive to the wider scene, in particular pay and employment conditions elsewhere in the group, in determining directors’ remuneration. We also want British companies to be able to offer the packages required to attract, retain and motivate people of the calibre and experience they need to make their companies successful. To quote Greenbury again, we believe that the key principles should be to link rewards to performance by both company and individual and to align the interests of directors and shareholders in promoting the company’s progress. I believe the reforms that this Government have introduced will continue to be effective in ensuring that those principles lie at the heart of decision taking on directors’ remuneration in this country. I do not think that the amendment, as drafted, would be helpful. I therefore ask my noble friend to withdraw it.