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(a) shall be made by statutory instrument, and
(b) may not be made unless a draft has been laid before and approved by a resolution of each House of Parliament.
(a) the FSA, and
(b) the Bank of England.
(5) A remuneration order shall enable the Treasury to appoint a person (with his consent) to sit as a full member of the remuneration committee of a bank, notwithstanding any provision in its constitution.
(6) Any person appointed under this section shall enjoy the immunity of an agent under section 234(2)(a) of this Act, save for the general duties of a director under Chapters 2 and 3 of Part 10 of the Companies Act 2006.
(a) in the case of a quoted company, any committee or body which prepares or drafts a remuneration report under sections 420 and 421 of the Companies Act 2006 (duty to prepare, and contents of, directors remuneration report) intended to be presented to the shareholders meeting as the directors remuneration report under section 439 of that Act (quoted companies: members approval of directors remuneration report);
(b) in the case of an unquoted bank, any committee or other body which prepares such similar information and material regarding remuneration as shall be specified by the order;
(c) in the absence of any such committee or body, the board of directors itself.
Lord Wedderburn of Charlton: I have been advised that it is procedurally proper for me to move the amendment even though my noble friend Lady Turner spoke most persuasively to it in moving Amendment 38, as did my noble friend Lord Borrie and, with some qualification, the noble Lord, Lord Newby, who adverted to it favourably. Indeed, the Minister said that he spoke against it with some qualification, and even mentioned that other members of the Front Bench were not unfavourably disposed towards it. I addwithout breaching the normal conventions of the Committeethat Members of the House of Lords on all sides have mentioned to me how favourably they see the merits of the amendment, which would give the Treasury the power to appoint a person to the remuneration committee, which normally provides the proposals for remuneration, in the broadest sense, of directors of banks and companies.
The history of this matter was not adverted to during previous discussion on the amendment, when I was unable to be in Committee for medical reasons. We are not discussing cardboard figures. We are discussing directors and top executives, who have the genes of their predecessors, because of the errors that were made in irresponsible business models, and the outlook and behaviour that has been so scandalous in the continual rise of top executives pay in companies and banks throughout the system.
When I wrote on this matter in 2003, I was amazed to find the multiples by which directors pay had exceeded the pay of others employed by banks and other companies. That fact deserves to be mentioned in the Bill. It is a Bill about banks, but banks do not do anything; bankers do things. Banks are an abstraction. If nothing is said in the Bill about the way in which the remuneration of top executives has exceeded the most depressed feelings of commentators, it will be noticed by those who look to this House and the other place to defend their interests. The matter has been mentioned in the most authoritative textbook on company law by Professor Gower, edited by Mr Davies. It states that the remuneration committees represent,
The key to that is that directors sit as non-executive directors on a multiplicity of companies, which gives rise to that phenomenon. It is no answer to the simple proposition I mentioned to invoke the plea that my noble friend Lady Ford invoked on the previous occasion at col. 1270 of Hansard, when she said that she refused to recognise the description of the noble Lord, Lord Newby, of the charmed circle that constitutes the membership of these committees being the basic reason for the phenomenon. Unless something is said in the Bill, it will be presumed that this House and another place do not care about that phenomenon, and that a banking Bill can be put through without bothering about that history.
The Minister said that he thought it was not necessary to add anything to the Bill to bring about the result I am discussing. My noble friend Lord Borrie, who supported the amendment, said that it was a modest amendment in the context of what had happened. The
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The aim of my noble friends in governmentin the face of what might be called industrial action by bankers in not lending even to one another in an excess of modesty and not lending to enterprises of small, medium and even large business, when that is the normal function of bankingmust be to point out that the record in the rapacious activity of top executives of banks and of other companies is such that the Bill must explicitly make a point of pointing the way to prevention rather than cure. Once the remuneration committee has proposed the requirements which in the Companies Act are required for a quoted companythe amendment would apply whether or not a company was quotedit is impossible for anyone to intervene to prevent the spiral getting started again. Even in quoted companies, the shareholders vote is merely advisory. I formally move Amendment 145, in the hope that the Minister can give us some more beneficial advice on the matter.
Baroness Turner of Camden: I put my name to the amendment, although I referred to it in speaking to the paving amendment on the previous occasion. My noble friend Lord Wedderburn drafted the amendment and was anxious to be able to speak to it.
These are not ordinary times; we are facing possible disaster. I speak as an ordinary depositor and, as such, I really am afraid. The media stories scare me; I want the protection of the Government. For that reason, I support the Bill. Many people feel as I do; one has only to read the correspondence in newspapers to see the sort of comments that people are making: What should I do? Should I take out all my money? Should I leave it under the mattress?, and so on. It is essential that confidence be restored, and I support what the Government are doing, but public money should mean public accountability, as I said on a previous occasion.
The amendment, which is a reasonable one and which is very modest, as my noble friend said, endeavours to meet the criticisms that have been made from time to time about the very large sums that have been paid to senior executives, sometimes in situations where they are responsible for the decisions that have landed us in the problems that we now face. A number of people are going to be hurt by this crisis, including the depositors whose interests will be diminished, down to zero possibly. They will lose money that they had been saving for their retirement and they will not be able to replace it. Then there are employees who will become unemployed.
In those circumstances, it is not reasonable for people to be seen to be walking away with very large sums of money. The amendment is modest, and I hope that the Government will be prepared to consider it, in view of the explanation that has been given by my noble friend in support of it.
Lord Higgins: I do not think that there can be any doubt that there is very widespread public concern about the way in which many of those who have been responsible, on bank boards and elsewhere, for the situation in which we now find ourselves have been in receipt of very great remuneration indeed. The amendment proposed by the noble Lord, Lord Wedderburn, reflects the public concern that is felt outside.
I suppose when the history of this period is written, there will be analysis of how this situation came about. I do not think that there can be any doubt that, in particular, institutional shareholders have perhaps not exercised as much influence as they may, particularly in pension funds and others. The situation has been largely uncontrolled, for the reason that the noble Lord mentioned, particularly with regard to interlocking directorships and so on.
This seems to be an appropriate amendment for us to consider, but, as the noble Lord has said, it is very modest, given that it only proposes the appointment of a director on the remuneration committee. That would certainly not give that person a decisive voice in any sense, although it may be influential. It is not at all clear what would happen if, having made his views known to the effect that remuneration might be excessive, his advice was ignored. None the less, the amendment is a step in the right direction and the noble Lord is right to say that, while the vast bulk of the Bill is concerned with highly technical and extremely important issues, it would be wrong for this aspect of the matter not to be considered.
Lord Wedderburn of Charlton: Perhaps I may ask the noble Lord whether he realises how much I value his experienced view on this extraordinary phenomenon in our social life and how right he is that a public voice on the remuneration committee would not be the same as a veto. Nevertheless, a public voice speaking in the public interest on the remuneration committee would draw to the publics attention the way in which a companys organs decide on the matter and would do a great deal to enhance the confidence of people who, without such an expressive amendment, would not have the confidence that my noble friends on the Front Bench and I would want the public to have in our Labour Government, which is the only Administration likely to deal at all with this problem.
Lord Newby: I do not intend to repeat the speech that I made before, but the big issue that the amendment raises about excessive remuneration is not confined to any bank that might virtually collapse and be brought into this regime. It is a common problem. The big issue that is being discussed in the City by a number of investor bodies is how shareholder power can be brought to bear against boards that make excessive payments. We had an early example of this a few days ago with Bellway, when a resolution was passed at the AGM voting down remuneration packages. Whatever you
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Lord Stewartby: I am certainly not unsympathetic to the concerns that lie behind the amendment. However, without trying to scotch the amendment in any sense, I point out that this is an exceedingly difficult process to provide for by statute. An amendment such as this would not function along the lines that its sponsors would like to see. As has been pointed out, there can be some public interest appointment to a remuneration committee but, if there is no statutory back-up to what that person does or how the remuneration committee acts in the light of the contribution from that source, the chances of the amendment being converted into the sort of action that its sponsors would like to see are not very great. I do not say that in a negative sense at all. I say it merely to point out that, in terms of corporate governance and process, it is an immensely complicated business to provide the sort of outcome that is sought. However, I would not wish to discourage people from working at it and, in either this or another context, coming up with something that is a little more likely to be effective in practice.
Lord Myners: I am very pleased to see that my noble friends health has improved and that he is here to speak to his amendment. He has no doubt read Hansard. I think that he would have greatly enjoyed the discussion that we had last Wednesday. It was lively and well informed, and it reflected a sincere interest in the subject, as well as some relief from the tedium and detail of other parts of the Bill.
I do not intend to deal with this matter in great detail now, as time is pressing and the arguments have already been presented to the Committee. A number of noble Lords spoke to the amendment in our earlier session, raising important points about a range of issues, including the role of non-executive directors and other matters.
I made three points in response to my noble friend Lady Turner and I shall set them out again briefly for the record. First, where the temporary public ownership or bridge bank tool has been used, the Government already have substantial powers in the Bill over executive remuneration. It is therefore not necessary to have an explicit provision in the Bill empowering the Treasury to appoint to a remuneration or similar committee.
Secondly, where a bank is privately owned, remuneration is a matter for the bank itself; I shall return to that in a moment. Generally speaking, pay for directors and employees must be a matter for the banks in question, as it is for any company. This applies where the private sector purchaser/stabilisation option has been used. I should add that, as the regulator, the FSA has said that it will take remuneration structures into account in its risk assessments of financial institutions with, to quote its words, increased intensity. I commend and support that decision by the FSA.
Thirdly, where a bank is in receipt of considerable public funds, these come with conditions attached, including over executive remuneration. The banks that are participating in the recapitalisation scheme have agreed to restricted remuneration for senior executives both for 2008, for which the Government expect no cash bonuses to be paid to board members, and for remuneration policy going forward. The statement on the Governments asset protection scheme, which the Chancellor of the Exchequer published yesterday, makes it clear that conditions will apply to the scheme, including in relation to remuneration policy.
My noble friend alerts the Committee to important concerns about executive remuneration. There is no obvious reason why the remuneration of the highest paid appears to have grown at such a fast rate compared with that of other people in corporations. It is not evident that there has been either a diminution of talent, which would be seen as a supply constraint, or an increase in demand. Therefore, it is right that the scepticism expressed by my noble friend about the processes by which decisions are made should be expressed in the pursuit of understanding. There is a risk that, to some extent, we have ownerless corporations in which decisions about remuneration are made in a vacuum because of the failure of the owners or their fiduciaries, the institutional investors, fully and properly to engage on issues of remuneration.
I have spoken on this subject in other venues. I have engaged with institutional investors and put the challenge to them that the very difficult situation that our banks are experiencing, along with banks elsewhere in the world, must raise some questions about the responsibilities of the owners. I ask my noble friends Lord Wedderburn and Lady Turner of Camden to draw some strength from the fact that views are being expressed in the Committee that are consistent with the anxieties that lie at the heart of the amendment. However, I do not think that this Bill is the right place to pursue this matter.
My noble friend Lady Turner said that she was scared. I would like to reassure her that, as a retail depositor with a British bank, she can, I believe, feel secure that our commitment to maintain the stability of the British banking system means that her anxiety should not trouble her greatly. The actions that we have taken are designed precisely to ensure confidence in the stability of the banking system and to ensure that retail depositors do not feel scared. I urge the noble Lord to withdraw his amendment.
Lord Wedderburn of Charlton: I am grateful to those who have spoken to the amendment and I am grateful to the Minister. One thing that my research in the area of company law, which includes banks, has shown since I began it in 1958 is that the owners, as the Minister calls them, are quite incapable of adequately restraining the demands of top executives in our banking and company structures. That has to be approached by adequate regulation. The one area that the Government and others have always refused to put within regulation is the pay and remuneration of those responsible for many of the irresponsible business models that have brought us to the crisis alluded to by my noble friend Lady Turner of Camden.
It is quite wrong to say that this Bill is not the place to bring up the problem. This Bill is the place because it is the Bill that is before the House and it is the Bill that is in the public mind. The public, who affect the figures of the opinion polls, will be the first to notice if no explicit mention is made in the Bill of the problem that they know exists and which they know has been part of the problem: people granting to themselves particular rewards for inexplicably absurd and irresponsible behaviour. If my noble friends on the Front Bench and my right honourable and honourable friends in another place want the opinion polls to respond well to this legislation and other legislation like it, they have to put a clause into the Bill explicitly to deal with the problem. I am grateful to the Minister for what he has said about the merits of the amendment and its objectives, but I hope that he will respond more favourably on Report than he has in Committee.
(a) the deposit protection amount; and
(b) their gross balance held by the person.
Baroness Noakes: We are making phenomenal progress. We have now reached Part 4, which concerns the Financial Services Compensation Scheme. We have several topics to debate, although perhaps not all this evening.
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