Vince Cable has said government policies aimed at tackling the vast pay gap between chief executives and their staff do not address the root cause of the issue and in some cases may have made the problem worse.
The former business secretary said measures to increase the transparency of executive pay had backfired by sparking a one-upmanship between large corporations eager to offer the most lucrative pay.
Cable added that recent measures that forced the disclosure of pay ratios may also fail to expose the true nature of a company’s remuneration culture depending on the industry.
The former Liberal Democrat leader was business secretary in the coalition government, which was criticised – “on balance fairly,” he said – for failing to introduce mandatory disclosure of the ratio between the pay of a chief executive and that of a median employee in a company.
Cable said he regretted failing to pursue this measure while a minister because it appeared to show a greater divergence in companies such as retailers, which have a large workforce, than in financial services firms where even junior employees are paid a reasonable salary.
“It [the pay ratio] doesn’t tell us about the fairness culture within the company. It tells us about the nature of the industry,” he said. “But on balance having more information rather than less is a good thing, so I regret that we didn’t do it.”
He said the coalition government’s decision to enforce more transparency on chief executive pay had backfired and led to “counterproductive effects” by sparking a race among companies to offer rising pay packets in an effort to attract the best corporate talent.
Cable, who was speaking at an event organised by the High Pay Centre thinktank, said the Covid crisis had renewed the focus on executive pay because of mounting concerns about economic fallout from the pandemic and the national debate over fairness and equality.
Deborah Hargreaves, the director of the High Pay Centre, which has called on ministers and shareholders to act to end the “runaway train” of inequality in corporate Britain, said the UK should “not waste this crisis” when “major reforms to the economic system” were needed.
“We have been tinkering around the edges of corporate governance,” she said. “We have to start talking about bolder measures. What’s wrong with a maximum wage? What’s wrong with a maximum pay ratio?”
