Monday, 5 December 2011

Flat Earth News... about executive pay

I think I'll look back on the second half of 2011 and think that two issues have occupied a lot of my time - media standards and ethics, and the policy debate around executive pay. I admit to being off the pace on the first. I read quite a few pieces of commentary about the likely extent of phone-hacking at the back end of last year and assumed that a) there was probably something in it but b) it wasn't a really big deal. Like many people, I was wildly wrong.

On the second issue, exec pay, I've been expecting the terms of the debate to shift for some time. I am (pleasantly) surprised at the speed of movement lately, in no small part due to the High Pay Commission, but I did think the nature of the discussion was going to change. I still think this has some way to go. For example, there is still a definite strand in the discussion that seeks to paint the main issue as rewards for failure. This is important, no doubt, and hence the focus on clawback lately is welcome. But I think this the 1990s vintage of the exec pay argument. I think in the next few years it will be much harder to get away with "I have no problem with large rewards if there has been excellent performance" type lines. In a period of austerity I think there will be scrutiny of large rewards per se if they are not shared across organisations.

This is likely to cause sparks to fly, as I think even now the business lobby is only reluctantly signing up to the idea that rewards for failure need to b dealt with more effectively. I think they may keep trying to fight that battle whilst other participants in the debate move on to the question of whether large rewards are justifiable if not shared more evenly across organisations. One to watch I think.

Anyhow, these areas of interest have collided. I recently started reading Flat Earth News by Nick Davies, principally because I wanted to see what he said about phone-hacking (actually not much in the scheme of things). However the book is much more concerned with how journalistic standards have become corrupted by cost pressures. Phone hacking and blagging are good examples of this in practice since they are cheap ways of getting information that journalists want. Nick Davies also explores in some detail the reliance on newswires by many mainstream news organisations (the nationals, Beeb, etc). Importantly that means that often the particular emphasis put on a story by the newswire can affect the coverage of the story in numerous outlets. It also means that an error can be spread through the media system quite easily, since people assume the wires get the facts right and don't check them.

Well today I was off sick so did a bit of work from home instead. I noticed that Nick Clegg's interview on the Andrew Marr Show was picked up in numerous places on the back of his comments on executive pay. The bit that really stuck in my mind was what he apparently said about remuneration committees.

For instance, the FT says:
Mr Clegg said he was also looking at whether to “break open the closed shop of remuneration committees” by adding an employee representative into the group that sets executive pay.
The Telegraph (which embeds the Beeb clip in its story) says:

The government will publish new proposals to "get tough" on excessive pay in January, the deputy prime minister said.

Among likely steps is widening the membership of remuneration committees, which set pay, to include workers.

The Grauniad agrees:

The deputy prime minister said that ministers would publish firm proposals next month, and the government was willing to legislate if necessary on measures that could include forcing firms to let workers sit on the remuneration committees setting pay rates for top executives.

And even the Beeb web story says:

The government is to publish new proposals to curb "unjustified and irresponsible" pay rewards in the private sector, Nick Clegg has said.

The deputy prime minister said ministers would announce plans to "get tough" on excessive boardroom pay in January and may legislate if necessary.

Among likely steps is widening the membership of remuneration committees, which set pay, to include workers.


Remuneration committees, the bodies which set the pay of top executives, were too often "closed shops", resembling "old boys" clubs, and he wanted to "break open" membership of these bodies.

Labour want workers to have a seat on remuneration committees to ensure their voices are heard and Mr Clegg suggested this was one area being looked at.

There's just one problem - he didn't say it. I've watched the clip on the Beeb site through several times now. He certainly says rem comms are too much of an old boys club, but, unless I am missing something, he doesn't even mention employee representation. *(see update at bottom, in full interview he is asked about it).

This is rather important, because there is a big difference IMO between opening up rem comm membership more widely and including an employee representative. They overlap, but the second implies a formal role for the workforce, or its representatives, in this aspect of corporate governance. This point isn't lost on the CBI, which says (PDF):

the inclusion of additional independent members or employee representatives on RemCos would fundamentally change the UK’s corporate governance framework.

So it is kind of important if Nick Clegg does indeed support employees on rem comms, or not. It would be a big statement of intent.

So where has this line come from? Was there more to the interview that the BBC clip doesn't include? Did a BIS spinner get busy after the interview to make sure the press got the message of what Nick Clegg really said? Or did a newswire put out a story that blended together what BIS consulted on (which includes employee reps) and what Nick Clegg, and the error got replicated widely? I genuinely don't know.

But on the face of it it seems that what we have at present is a bunch of national newspaper reports that claim that the Deputy Prime Minister said something which he actually didn't, and which can be easily cross-checked against a publicly available clip of the interview.

*UPDATE: Actually to be fair, in the full version of the interview on BBC iPlayer Clegg IS asked about employees on rem comms. But he just says they have consulted on it. He does not say he supports the idea, that it is likely or give any kind of opinion on the issue.

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