David Cameron's recent remarks to the Sunday Telegraph when considering executive pay levels, included the following "I've been struck that you now get the criticism of pay at the top, and of bank bonuses, from a business audience…. There is a very strong case that small businessmen and women working hard, grafting away, building a business and not paying themselves huge amounts are furious with these rewards at the top for people who aren't taking the sort of risks they're having to take".
Now I am not a gambling man but even I would wager a crisp fiver that many readers of this publication will have considerable empathy with that remark. Whilst not furious, certainly annoyed. Hard working solicitors enduring difficult times, grafting away building a business and not paying themselves huge amounts. A quick straw poll of colleagues and other members of the Leeds legal fraternity leads me to believe that most lawyers in our area, perhaps as high as eighty per cent, have seen no increase in their pay or drawings in the last two or three years. The business of the law is as difficult as ever it seems and the future if not black, is a definite shade of grey.
So if we cannot readily recognise a legal fat cat who are the fat cats that Mr Cameron, Mr Cable, and others in the coalition are seeking to 'sort out' in Mr Cameron's words? And why? The description used is 'executive' and Mr Cable is advocating the publication of the difference between executive's pay and that of the average worker and also, information regarding the proportion of company profits paid to directors. The reason for this not inconsiderable attention seems to emanate from reaction to the recent report of the High Pay Commission stating that from 2000 to 2010 shares in the FTSE 350 companies were flat at best but the average directors pay rose by a staggering 108% and director's salaries in general i.e. not those limited to the FTSE 350, during the same decade rose by 64%. In the past financial year alone, the directors of the top FTSE 100 companies have enjoyed at a 49% increase in total earnings. What relevance has this to the average Yorkshire and Humber lawyer I hear you ask. Well, read my earlier comments above. We have not seen a 49% increase in pay and in fact some may well have seen a 49% decrease. Time to be 'furious'?
Now, if a business is doing well then pay should increase but a 49% increase in total pay whilst the FTSE 100 companies have flat growth, suggests an excessive growth in pay totally unrelated to success; remuneration not relevant to performance. This is wrong, but what to do? The suggestion is that Mr Cable will soon propose that shareholder votes on companies' remuneration policies should become binding votes, as opposed to being merely advisory, which is the current position and that companies with large UK operations should appoint employee representatives to those remuneration committees that decide on executive pay. Another suggested reform is to make it compulsory for businesses to publish some kind of ratio information showing the relationship between senior executive rewards and the earnings of a typical employee. David Cameron has apparently promised to give shareholders a binding vote on director's pay increases as a way of curbing excessive pay awards. Lawyers will question, "will this work?" and "how will it work?".
As lawyers, we recognise the huge practical difficulties facing proposed changes in the law in this area because any decision taken by the shareholders might well clash with employment law, contract law and corporate law. How could any decision taken by the shareholders be enforced? Would the decision override the current provisions of an existing contract of employment or a commercial contract? As lawyers we have every right to be sceptical. As most corporate lawyers will tell you, it is difficult enough to get more than 50% of shareholders to vote against anything, let alone a proposed pay rise for executives, and indeed, it is quite unusual to have more than 50% of the shareholders attend the AGM of a quoted company, as the vast majority of investors only hold shares for a limited period of time.
One can applaud the political will to create a more equitable system of capitalism that would reward performance and contribution but one cannot fail to think that this targeting of a very small section of the business community is but a scratch on the surface. A vote catcher. Those of us in the business of providing legal services, have to continue on the basis that if the money is not earned you do not take a reward, 49% or otherwise. Legal fat cats are rarely seen.
