Bloomberg News

U.K. Executives Must Justify Pay and Bonuses, Cameron Says

October 28, 2011

(Updates with comments from Ed Miliband starting in 10th paragraph.)

Oct. 28 (Bloomberg) -- Prime Minister David Cameron said executives must justify their pay as a report showed that directors of the largest British companies saw their earnings jump by 49 percent in the last financial year.

Directors of businesses in the benchmark FTSE 100 Index earned 2.7 million pounds ($4.3 million) on average, according to research by Incomes Data Services published today. The survey covered accounts with year-end dates between February 2010 and April 2011.

“This is a concerning report, particularly at a time when household budgets are very tight, when people have difficult circumstances,” Cameron told reporters in Perth, Australia, where he is attending the Commonwealth summit. “Everyone, whether they are in public life, whether they are in private enterprise, they’ve got to be able to justify the decisions they make about pay.”

Cameron said pay decisions should be published, including the multiple in remuneration between the lowest and highest paid in the company. Boards should also be more accountable to shareholders and consider the wider implications of their actions, he said.

Directors saw their average bonus payments increase by 23 percent to 906,044 pounds in 2011, up from 737,624 pounds a year earlier, Incomes Data Services said. Total earnings for chief executive officers, including salary, benefits, bonuses and long-term incentive plans, increased by 43 percent. In the 12 months through March, the FTSE 100 gained 4 percent.

Public-Sector Squeeze

The report comes at a time when the recovery has stalled, unemployment is rising and public-sector workers endure a two- year pay freeze to help narrow the budget deficit.

“It is very hard to justify these sorts of pay increases,” said Deborah Hargreaves, chairwoman of the High Pay Commission, an independent panel set up to investigate top pay in the private sector. “We have got a closed shop here and someone needs to break it open,” she told BBC Radio 4’s “Today” show.

If there were more women on company boards, it would have “a beneficial effect” on breaking the “closed circle” of executives making pay awards to each other, Cameron said.

“Boards have got to think when they make pay awards if it is the right and responsible thing to do,” Cameron said. “I believe in a responsible society, and that is responsibility exercised by everybody, including in the boardroom.”

Ed Miliband, leader of the main opposition Labour Party, said companies should appoint “ordinary employees” to their boards and end the “cozy cartel” of directors awarding each other ever higher pay.

“People are not against those at the top getting higher rewards if those rewards are earned, if more wealth is created, if more jobs are created,” Miliband said in an e-mailed statement. “But when people are struggling, when the middle is being squeezed, when people are seeing their living standards fall, it is not fair for those at the top to get runaway rewards not related to the wealth they have created.”

--Editors: Andrew Atkinson, Eddie Buckle

To contact the reporter on this story: Thomas Penny in London at tpenny@bloomberg.net

To contact the editor responsible for this story: Eddie Buckle at ebuckle@bloomberg.net


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