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Labour review calls for tougher rules on pay in the boardroom Labour review calls for tougher rules on pay in the boardroom
(7 months later)
Labour proposes a fresh crackdown on boardroom pay in a report released on Tuesday, which comes as the chancellor faces defeat in his efforts to head off a European cap on bankers' bonuses.Labour proposes a fresh crackdown on boardroom pay in a report released on Tuesday, which comes as the chancellor faces defeat in his efforts to head off a European cap on bankers' bonuses.
The review of short-termism in UK industry calls for checks to stop executive pay being based on short-term profits and tax incentives to encourage long-term investment.The review of short-termism in UK industry calls for checks to stop executive pay being based on short-term profits and tax incentives to encourage long-term investment.
The report, prepared by Sir George Cox for Labour, represents the first serious official thinking from the party on how to address City short-termism. It also marks a new emphasis on industrial policy.The report, prepared by Sir George Cox for Labour, represents the first serious official thinking from the party on how to address City short-termism. It also marks a new emphasis on industrial policy.
It comes as George Osborne goes to Brussels on Tuesday in what looks like a forlorn attempt to prevent the European Union from imposing severe curbs on bankers' bonuses in the City.It comes as George Osborne goes to Brussels on Tuesday in what looks like a forlorn attempt to prevent the European Union from imposing severe curbs on bankers' bonuses in the City.
In a highly unusual defeat for the British financial services sector, illustrating the UK's deepening isolation in Europe and the reluctance of EU partners to do Britain any more favours, finance ministers of the other 26 are expected to endorse legislation to slash "fat cat" bonuses.In a highly unusual defeat for the British financial services sector, illustrating the UK's deepening isolation in Europe and the reluctance of EU partners to do Britain any more favours, finance ministers of the other 26 are expected to endorse legislation to slash "fat cat" bonuses.
The was made last week at hard-fought negotiations between the European parliament and officials from the 27 member states. Despite David Cameron's opposition and Osborne's pledges to contest the deal, it appears irreversible. The UK is unable to wield a veto as Tuesday's decision can go to a qualified majority vote if necessary.The was made last week at hard-fought negotiations between the European parliament and officials from the 27 member states. Despite David Cameron's opposition and Osborne's pledges to contest the deal, it appears irreversible. The UK is unable to wield a veto as Tuesday's decision can go to a qualified majority vote if necessary.
Britain has been unable to muster enough allies to block the proposal. Its likeliest supporters, Sweden, the Netherlands and, most crucially, Germany have all come out in favour of capping bonuses.Britain has been unable to muster enough allies to block the proposal. Its likeliest supporters, Sweden, the Netherlands and, most crucially, Germany have all come out in favour of capping bonuses.
Last week's agreement, brokered by the Irish government, caps bonuses at a year's salary, although this can be doubled if a "super-majority" of a bank's shareholders so decide.Last week's agreement, brokered by the Irish government, caps bonuses at a year's salary, although this can be doubled if a "super-majority" of a bank's shareholders so decide.
On Sunday, the Swiss voted by a sweeping majority in a referendum for even tighter controls on bank pay, envisaging jail terms for those who break the new rules.On Sunday, the Swiss voted by a sweeping majority in a referendum for even tighter controls on bank pay, envisaging jail terms for those who break the new rules.
"The Swiss are showing us the way," said the French prime minister, Jean Marc Ayrault."The Swiss are showing us the way," said the French prime minister, Jean Marc Ayrault.
On Monday the Italian business newspaper, Il Sole 24 Ore, called for a new international system regulating bankers' pay.On Monday the Italian business newspaper, Il Sole 24 Ore, called for a new international system regulating bankers' pay.
The Cox report suggests that the company governance code be altered so at least 30% of executive director remuneration be paid in the form of shares that cannot be cashed in for five years or until after the director has completed his or her period on the board.The Cox report suggests that the company governance code be altered so at least 30% of executive director remuneration be paid in the form of shares that cannot be cashed in for five years or until after the director has completed his or her period on the board.
It proposes a ban on voting rights for any shareholders who appear on the register during a takeover bid and says measures are needed to remove the tax treatment bias that favours companies funding loans through debt as opposed to equity.It proposes a ban on voting rights for any shareholders who appear on the register during a takeover bid and says measures are needed to remove the tax treatment bias that favours companies funding loans through debt as opposed to equity.
In an effort to encourage so-called "patient capital" the report suggests capital gains tax on shares could be tapered in a series of yearly steps from 50% in year one to 10% after year 10. The report suggests the measure would be revenue neutral.In an effort to encourage so-called "patient capital" the report suggests capital gains tax on shares could be tapered in a series of yearly steps from 50% in year one to 10% after year 10. The report suggests the measure would be revenue neutral.
The business secretary Vince Cable commissioned a lengthy report on the same policy territory from Professor John Kay. He proposed a range of reforms including an end to quarterly reporting by companies, an idea endorsed in the Cox review.The business secretary Vince Cable commissioned a lengthy report on the same policy territory from Professor John Kay. He proposed a range of reforms including an end to quarterly reporting by companies, an idea endorsed in the Cox review.
The report also proposes that all major infrastructure investment, such as High Speed 2 and airport capacity, could be taken out of party politics so that responsibility is handed to an independent agency that is accountable to parliament but independent of MPs.The report also proposes that all major infrastructure investment, such as High Speed 2 and airport capacity, could be taken out of party politics so that responsibility is handed to an independent agency that is accountable to parliament but independent of MPs.
The report claims "successful executives are those who can respond and deliver fast results and incentive schemes are devised to ensure that this practice is embedded in the way the company behaves It thus becomes the fabric of the organisation and a difficult thing to change".The report claims "successful executives are those who can respond and deliver fast results and incentive schemes are devised to ensure that this practice is embedded in the way the company behaves It thus becomes the fabric of the organisation and a difficult thing to change".
It suggests:"If more long-term participants are to be attracted to the equities market and more institutional shareholders are to be encouraged to take a long term view, then there has to be an incentive to do so.It suggests:"If more long-term participants are to be attracted to the equities market and more institutional shareholders are to be encouraged to take a long term view, then there has to be an incentive to do so.
"Beneficial tax treatment would appear to be the best route but it needs to be a powerful incentive if significant change is to be brought about.""Beneficial tax treatment would appear to be the best route but it needs to be a powerful incentive if significant change is to be brought about."
It adds: "Research and development remains too small in the UK companies, and it is a cause for concern that the UK's technological edge has not produced firms to exploit that technology such as eBay, Amazon, Facebook or PayPal."It adds: "Research and development remains too small in the UK companies, and it is a cause for concern that the UK's technological edge has not produced firms to exploit that technology such as eBay, Amazon, Facebook or PayPal."
It points out graphene was discovered in UK universities yet UK businesses have developed 54 related patents while the Chinese have filed 2,024 patents.It points out graphene was discovered in UK universities yet UK businesses have developed 54 related patents while the Chinese have filed 2,024 patents.
Matthew Fell, director for competitive markets at the business body CBI, said: "There is a need to encourage a more long-term focus from investors and the report's recognition that industrial strategy should be a cornerstone of government policy is welcome."Matthew Fell, director for competitive markets at the business body CBI, said: "There is a need to encourage a more long-term focus from investors and the report's recognition that industrial strategy should be a cornerstone of government policy is welcome."
The Institute of Directors released details of its own survey of members which found 92% of business leaders thought that short-termism was a significant impediment to the growth and development of the UK economy.The Institute of Directors released details of its own survey of members which found 92% of business leaders thought that short-termism was a significant impediment to the growth and development of the UK economy.
Simon Walker, Director General of the IoD, said: "Many UK companies feel exposed to short-term pressures which can inhibit their ability to plan and invest for the longer term.Simon Walker, Director General of the IoD, said: "Many UK companies feel exposed to short-term pressures which can inhibit their ability to plan and invest for the longer term.
"The economic downturn has made things worse, forcing many firms to focus on their very survival rather than longer term investment.""The economic downturn has made things worse, forcing many firms to focus on their very survival rather than longer term investment."
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