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Mr. John Marshall (Hendon, South): Does thehon. Gentleman agree that that point emphasises the merits of a different recommendation of the Greenbury committee regarding the length of service contracts? If we were to reduce the length of such contracts to one year, many large pay-offs would not occur. It has more to do with the length of service contracts than with share options.
Mr. Tipping: The hon. Gentleman makes a fair point. The length of service issue is important. Like him, I would
like to see more short-term contracts of about one year's duration. At Severn Trent, the diversification into waste disposal and the acquisition of Biffa led to problems within the company.
The public find it hard to believe that the chief executives at East Midlands Electricity and Severn Trent did the same job in the privatised industry as when the companies were under public ownership. They also find it hard to accept the monopoly position that put the companies into such advantageous positions. They do recognise that, at the end of the day, the whole company is underwritten--there is a safety net--by its ability to raise prices. If things go wrong, the consumer will pay.
The employees of the newly privatised utilities will also be affected. The Financial Secretary was rather dismissive of the scare stories--as he put it--about executive share options and the perks that the top men in such companies enjoy. We must remember that many employees of the water and electricity companies, in particular, have lost their jobs. The companies have achieved success through efficiency measures, and the most basic efficiency measure is to reduce the number of staff.
I have a lot to do with National Power. Its officers have been extremely generous in their willingness to show me around the company and to talk with me. I do not have any financial interest in the company--I can see that the hon. Member for Dover (Mr. Shaw) is listening to me very closely. The management of National Power has allowed me the latitude to walk around the company and to discuss the past and the future. About two thirds of the company's employees have lost their jobs. At the same time, the executives of the company have seen their pay explode. I look forward to watching the share options, the salaries and the pensions of people in the generating industry.
Only the other day, I was looking closely at the share prices of electricity companies. The prices have fallen, for reasons that are not entirely in the companies' control, but on which they have some input. I look forward to seeing whether the executives' benefits fall as well.
If the amendment were implemented, it would lead to some fundamental changes in the way that companies operate in the United Kingdom. There would be more transparency, because all employees would be involved.I and others find it hard to discover the real benefits being given to directors and chief executives of newly privatised industries. If all employees had the right to be members of a share option scheme, that would lead to greater transparency.
Mr. Jack:
I agree with the hon. Member that it is a good idea to have employee participation in companies. However, there is some evidence that, if there were to be a scheme such as that to which the amendment refers, some companies might decide that they did not want to run a company share option scheme. Does thehon. Member think that that is a risk worth running?
Mr. Tipping:
That may be a risk, but it is a choice for the company. I feel strongly that the benefits of such schemes would outweigh the disadvantages enormously. The first benefit would be transparency. The second
If people had a shareholding or stakeholding in the company, it would lead to a long-term view. People who work for major companies are committed to their success. For example, the coal miners who work for Coal Investments Ltd. gave up their holidays when the company was in trouble over Christmas and went in to work. The schemes suggested in the amendment would reinforce that view.
Companies should be open, transparent and fair to everybody, not just to the few, and they should take a long-term rather than a short-term view. That is why I support the amendment.
Mr. David Shaw:
May I extend my apologies to the House? On the flight back from the European Parliament, where I was today attending the Labour and Social Affairs Committee, I was delayed at a border control at Brussels airport which, according to everything we are told, does not exist. It was very real.
I am speaking in the debate because I have long had an interest, although not a personal, pecuniary interest, in how employees should be rewarded and share in the success of their companies. I have never had share options myself, but over the years I have sat on the boards of one or two companies and awarded share options to certain individuals. The decision-making process has been interesting, as has seeing the way in which share options can reward people.
I have always made a practice of looking not just at directors or managers as recipients of share options but at secretaries and middle and lower management, to encourage a broad spectrum of employees. We did not necessarily award share options to every member of the company. There were often good reasons for not awarding the options to some individuals. Sometimes, sadly, it might have been better if individuals had got a job elsewhere, and sometimes people were relatively new to the company and were still untried and untested.
I also have a long-standing interest in share options from a constituency point of view. During the 1987 election--the one that got me into the House--we were shown around the Buckland paper mill, which was lucky enough to be visited also by someone called Kenneth Clarke, now known to the House as the Chancellor of the Exchequer. Kenneth went around the paper mill and met the secretaries and typists, who were fully aware of the success of their company. They were interested in the share price and in how the mill was performing as part of a larger group.
The thing that impressed the current Chancellor was that those people's share options gave them an added interest in the company--they felt that they were part-owners of it. That feeling extended down to the shop floor, where the mill produced Conqueror paper, which is famous not just because it is used in the House of Commons but because it is unquestionably one of the best papers in the world.
The people in the company took great pride in owning part of the manufacturing process. They were thoroughly involved at every stage and, because of their share
options, were keen on the success of the company. That is why I have a passion for share options as a way of motivating company employees.
The employees of P and O in my constituency--hundreds of them--also own share options. Junior onshore staff and more senior officers on board the ferries that make Dover a successful part of the country participate in share option schemes, which are clearly beneficial to many people in my constituency.
Within a month of his appointment as Financial Secretary, the Minister rapidly apprised himself of an enormous amount of information once the debate on share options got under way, and I thank him for that. We were both shocked by how complex some of the details of the argument can be, but we discovered that fundamental misconceptions surround share options and share option schemes. All the focus on fat cats and directors diverted attention from the hundreds of thousands of employees who were benefiting and who had benefited from share options. We should not forget that just under 1 million people are in this category; I hope that that number will be exceeded under a Conservative Government in the near future.
Another key misconception concerns the fact that people forget that these are approved discretionary share options. They became known as executive share options, however. Although it was often envisaged in the early stages that senior management and top people would be the main beneficiaries, it was soon discovered that junior employees--secretaries, typists, bank clerks--would also be significant beneficiaries, and rapidly became so. We found, in short, that the social spectrum was much more widely covered by share options than many people expected. They rapidly became another element in the expansion of democratic capitalism.
I was delighted to read all the research showing just how wide and deep the ownership of share options had become--just like the ownership of shares.
Mr. Denis MacShane (Rotherham):
The hon. Gentleman will have read today that Mr. Archie Norman, a wannabe Tory Member, has just cashed in £3 million in share options--a modest addition to his private fortune. The problem was that the Asda share price dropped by 3p, thereby wiping out a considerable part of the value of the shares of ordinary investors in Asda. Which is more important--the immense gain that Mr. Norman has pocketed, or maintaining the value of the Asda shares in which many ordinary investors, through their personal equity plans and unit trusts, may have placed their faith?
Mr. Shaw:
When Archie Norman went into Asda, the company was flat on its back; it was suffering badly from competition from supermarket chains that were much more successful, and 37,000 of its employees faced the possibility of losing their jobs during the recessionary period if it had gone under. It was very close. It was within a whisker of going under. Archie Norman rescued the company. I have spoken to a number of his junior employees and not one of them begrudges him his share option profits. They are happy that he rescued their jobs and the company.
9 pm
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