Jan. 8 (Bloomberg) -- U.K. Prime Minister David Cameron said the current system of executive pay is wrong as it allows for failure to be rewarded and promised shareholders a binding vote on compensation decisions.
“What I think is wrong is pay going up and up and up when it’s not commensurate with the success companies are having,” Cameron told the British Broadcasting Corp.’s “Marr” program today. “That’s what’s wrong, that’s what needs to change,” he said, promising “clear transparency, in terms of the publication of proper pay reports and binding shareholder votes.”
With U.K. unemployment at a 17-year high and the government cutting public sector jobs as part of its austerity plan, the Prime Minister pledged to deal with unfair levels of executive pay that made “people’s blood boil.” A study by the High Pay Commission, a pressure group that pushes for curbs on top earners, found British directors’ salaries increased by 64 percent over the past decade, while the average year-end share price of FTSE 100 companies fell 71 percent.
While he noted that “government can’t tell people what they should be paid,” Cameron said it should act “where you’ve got a market failure.”
Some top executives were “taking money from the owners of the companies and from pension-holders and the employees,” he said. Cameron added that future pay rewards “would be linked to success, not failure.”
The pledges, which Cameron announced in his New Year’s message on Jan. 2, are an enactment of ideas floated by Liberal Democrat Business Secretary Vince Cable in September. The average annual bonus for directors rose 187 percent, according to the High Pay Commission.
Cameron said changes would include replacing shareholders’ advisory votes on pay with a binding vote. The move will address the “crony capitalism” that allows underperforming executives to reap pay rewards, he told the Sunday Telegraph in an interview.
“We need to redefine the word fair,” Cameron told the newspaper. “We need to try to give people a sense that we have a vision at the end of this, of a fairer, better economy, a fairer, better society, where if you work hard and do the right thing you get rewarded.”
Other plans by the government include keeping the top tax rate of 50 pence for people earning more than 150,000 pounds ($231,390), the Sunday Telegraph said.
Cameron also said he would block any attempt by the European Union to impose a financial transaction tax in the U.K.
“The idea of a new European tax, when you are not going to have that tax put in place in other places, I don’t think is sensible,” he told the BBC. “So I will block it unless the rest of the world all agreed at the same time that we were all going to have some sort of tax.”
The opposition Labour Party’s business spokesman Chuka Umunna said Cameron’s proposals didn’t go far enough to curb pay excesses.
“The Prime Minister is dragging his feet and has not given any indication that he will implement the recommendations of the independent High Pay Commission in full,” he said in an e- mailed statement today. “There is no point giving shareholders a vote on executive pay without the greater transparency needed so they can discern the aggregate remuneration executives receive under the complex arrangements currently in place.”
Cameron also apologized on the “Marr” program for telling the Sunday Telegraph that facing Ed Balls, who speaks for the Labour Party on Treasury matters, in Parliament was “like having someone with Tourette’s permanently sitting opposite you.”
“I was speaking off the cuff and if I offended anyone, I am very sorry,” Cameron told the “Marr” show.
--Editors: John Deane, Hellmuth Tromm
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