Vince Cable is fighting yesterday’s battles on boardroom pay

 
Allister Heath

THE VINCE Cable show is back on the road. The business secretary is up to his old tricks again, waging war on business. He writes in a letter to FTSE bosses that “excessive and disproportionate pay damages popular trust in business” and that it “undermines business’ licence to operate”.

It’s a shame he didn’t make himself aware of an analysis of top bosses’ pay produced recently by PwC, and reported at length in this newspaper.

Median bonus payouts for 2013 were one per cent lower than in 2012 and suffered their third consecutive decline despite a rebounding economy and a 10 per cent jump in the FTSE 100 last year. Median total pay, including long-term incentive pay-outs, increased just 0.5 per cent, less than the average across the economy as a whole and a cut in real terms.

The dramatic tightening of corporate governance that Cable is calling for has already happened, as has the closer link between boardroom pay and performance. Institutional shareholders are in control, albeit often behind the scenes. Does more work need to be done? Most likely – but Cable ought to be boasting about the improvement, not attacking the City yet again. In truth, his own reforms haven’t really made much difference, though making it easier for shareholders to vote on pay was a good move.

Cable’s decision to write about businesses’ so-called “permission to operate” says a lot about his political views and the relationship he imagines exists between the state and the individual. It is a fashionable expression, seen by many commentators as merely indicating that firms need to keep the public on side, which is self-evidently true.

But in reality the use of the phrase implies that private enterprise is a privilege granted by politicians, and one that is theirs to take back whenever they see fit. I disagree: in my worldview, people have a fundamental right to own property, trade their assets and engage in capitalist activities. In a philosophical sense, they should not need anybody’s permission to do this. A pro-market politician would have used a less loaded form of words.

Cable is fighting old populist battles, presumably because he wants to raise his profile again and because the Liberal Democrats are faring poorly in the opinion polls. Crucially, it is Barclays’ AGM tomorrow, and the pay issue will loom large over the proceedings, hence Cable’s timing.

In an interview with the BBC, Cable also said that “Barclays was the most extreme in terms of executive pay in the bad old days, unlike RBS they didn’t collapse, but nearly”. For good measure, Cable added again later in the interview that Barclays “almost collapsed, but didn’t”. It is hard to understand what our business secretary is trying to achieve – apart, again, from scoring cheap political points.

For a start, Barclays was not the most “extreme” UK firm when it came to pay. There is also a big difference between employee pay and boardroom pay; in investment banks, employee pay is traditionally a share of revenues and not determined by profits. Secondly, why does Cable keep wrongly trying to downplay the differences between Barclays and Fred Goodwin’s RBS back in the day? What is the point of repeatedly undermining an important British firm, so many years after the crisis? Does Cable not want there to be any British-based investment banks left?

It is clear that Barclays today has serious problems: it needs to increase its return on equity and cut costs, and more areas of its business may no longer be viable. But Barclays’ shareholders know what needs to be done; they don’t need yet more political meddling. We need to live in a world where shareholders are never absentee landlords, where bosses’ and investors’ interests are aligned, where a great performance means a great reward but a poor performance means no bonus or the sack. Sadly, Cable no longer has anything useful to add to the debate.

allister.heath@cityam.com
Follow me on Twitter: @allisterheath