By Tom Lubek — February 2, 2012

On 23rd January, Vince Cable, the Business Secretary, outlined measures designed to curb excessive executive pay in a speech to MPs. Cable said that there was clear evidence that businesses and investors recognise a “disconnect” between the performance of companies and top pay, and that something must be done to rectify this.

He also said that it is unacceptable to see chief executives’ pay rising at 13 per cent per year whilst companies continue to perform poorly on the stock exchange and that “we can’t accept top pay rising at five times the rate of average workers’ pay, as it did last year.”

Though Cable said that it is not the role of government to “micro-manage” company pay he subsequently unveiled a package of measures that will address what he has termed as a “clear market failure.”

These measures are as follows: “First greater transparency, so that what people are paid is clear and easily understood; more shareholder powers, such as the introduction of binding votes so they can hold companies to account; more diverse boards and remuneration committees; and best practice led by business and investor community.”

Cable concluded by saying that although no one of these proposals is a “magic bullet,” together they can “enable a major transformation.”

Chuka Umunna, the Shadow Business Secretary, said that he welcomed much of what the Business Secretary had said, but also that “his proposals simply do not go far enough in promoting the transparency, accountability and fairness that people want to see.”

Umunna said that his party would make sure that lower level employees were included on remuneration boards, and that firms would be required to publish ratios between their highest paid employees and the average wage of the company.

Cable responded that he would like to see more employees on boards but there were problems in mandating their involvement and that it couldn’t be done in every company.

He also said that pay ratios were “a good idea” but misleading, an example being that a firm with a lot of low paid workers would not compare well with one that had out sourced all of its low paid work to other countries.

The proposals also received criticism from a number of MPs. Labour’s Dennis Skinner and Paul Blomfield suggested that the measures did not go far enough and the Tory MPs, Peter Bone and Phillip Davies, referred to them as “Liberal left-wing claptrap” and “drivel” respectively. They also cast doubts over whether they would actually do anything to stimulate the economy.

The Prime Minister has said he does not believe that the answer involves putting more employees on boards, but instead it lies with greater transparency, empowered shareholders and making sure that people are not rewarded for failure with “massive payoffs.”

Dr Roger Barker from the Institute of Directors said that the government is right to be considering ways to make boards more diverse so they do not incorporate only the views “of current and former executives in the setting of CEO pay.”

By contrast however, Brendan Barber, TUC general secretary, said that it was “very disappointing” ministers have failed to make any changes to the status quo.

He talked of “a few welcome thinkers” to the current system, but argued that the Business Secretary “has shied away from the big decisions on all of the major proposed reforms, from worker representation to company pay ratios and open advertising for posts on remuneration committees.”

Any efforts to address the unbalance of executive pay are welcome, as it is an attempt to curb the culture of rewarding failure in business by executive pay-rises.

However, the proposals put forward thus far seem vague and it remains to be seen how well they will be implemented and whether any difference will actually be made.

Shareholders should be given powers to hold companies to account because after all it is in their interests, as well as the collective interest, to make sure that they are being managed effectively.

Joined with this is the pledge to diversify remuneration committees, such that any commitments to executive pay-rises they make will take into account wider views – but how exactly is this diversification to be implemented?

It therefore remains to be seen whether or not the proposals represent a serious desire to actually resolve the issue of executive pay, or are simply just a token gesture from the government.