Dear Vince Cable, keep your nose out of private business
Vince Cable, in what I’m sure will be semi-orgiastic frenzy for the Lib Dem conference, wants to reveal the pay of company bosses to its workers, instilling what he so valiantly calls “responsible capitalism.”
Which I think is a great idea. I mean, why stop there? Why not have public pay lists for every member of a company? That’ll be good for business.
As I ranted last week about our Justice Secretary who doesn’t like justice, it is hard to be surprised by the greatest irony of our coalition – our anti-business, Business Secretary – but Vince really does try.
Why on earth should a private sector business reveal its directors’ salary, pensions, share schemes and bonuses? There is public interest when the taxpayer is responsible for their pay but in the private sector there is no need to know this. The market dictates the value of its employees. What will this possibly achieve? We know that directors earn a lot of money, so they should. Infuriating Bob in accounts on £25k, by letting him know his boss takes home £2.5m, isn’t going to achieve anything.
Still it might be worth a watch just so you can see the grimace on his face as he admits, “People accept capitalism…,” even with his ‘responsible’ caveat that must be hard for our Business Secretary to stomach.
And as John Redwood points out…
It is a strange paradox. Mr Cable dislikes high private sector executive pay, and wishes to get shareholders to curb it. Yet Mr Cable is one of a select few who decides the pay of RBS executives, a loss making state owned bank. He does nothing to curb that.
3 Comments on “Dear Vince Cable, keep your nose out of private business”
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Why on earth should a private sector business reveal it’s directors’ salaries? To allow shareholders to make informed decisions? This is actually very pro-market and would allow shareholders to pressure boards who continue to reward directors regardless of performance. One of the problems of the last few years has been market failures arising from lack of information. It would be quite another thing if he wanted to limit pay but simply making the information available in a clear way can only aid a well-operating market economy.
Do you believe shareholders cannot make the decisions without knowing the directors’ salaries? The market already deals with this to a certain extent because the shareholders care about their own profits and therefore, what they care about most, is ensuring that the business is as lucrative as possible. If a director starts to lose the company money, the shareholders will pressure the boards.
I agree that lack of information was one of the reasons for the failure. Splitting up the banks will be one of the most important steps because, if nothing else, it allows the public to understand a little more about where their money goes and how it is spent.
I don’t believe revealing the salaries of the directors will change anything – certainly not at the level of the board.
I’ll point out I haven’t actually seen the speech yet, been very busy all day and so can’t comment on other parts of the speech.
I hear he made a fool of himself on the 50p rate though…
I suppose that you can argue the other side, that while I don’t expect it to be a revolution in corporate governance, anything that makes annual reports fulfil their supposed purpose has to be a good thing. Researching the government investigations into the audit market recently I was surprised at how poorly informed even members of the board could be about details of the business.
If senior staff know that they will be taken to task for their remuneration an effective market incentive is provided to justify that payment. Currently this is obscured by scattering the information throughout the annual report and not including various benefits.
For a free market libertarian it’s a bit of a no-brainer!