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Banking Bill

My Lords, this amendment addresses an issue of concern with regard to the levels of remuneration paid to directors by some of our largest financial firms. I share my noble friend Lord Wedderburn’s concerns about the impact of excessive remuneration, which can cause undesirable behavioural distortions, particularly where it is inadequately linked to performance and produces outcomes that are manifestly unfair. But I must also point out that we debated these matters in Committee not once, but twice, with my noble friend showing a formidable knowledge of the procedural avenues available to those determined to press their case in your Lordships’ House. I can only reiterate what I said twice in Committee: the issue of pay and incentives for the directors and employees of a private firm—it is important to emphasise that it is also about employees, because if we have concerns about remuneration they should not be limited to the remuneration of directors—is a matter for that firm, not the Government. There is surely little place for government in determining wages and incomes, a policy approach that has not been attempted for many decades. I am not as persuaded, however, that there is not a public interest concern regarding the process followed in framing remuneration decisions and regarding the role of shareholders, particularly institutional shareholders, in the determination of those frameworks and outcomes. There is a real issue which the FSA is actively addressing around the impact of incentives in remuneration. The chief executive of the FSA wrote to the chief executives of the major banks in October to clarify the expectations of the authority with regard to remuneration. This letter sets out some high-level criteria for good and bad remuneration policies and urges firms to review their remuneration policies against those criteria. The FSA has followed it up through active engagement with firms on their remuneration policies and has reiterated the importance it places on appropriate and balanced remuneration. I can assure noble Lords that the issue of excessive remuneration regimes is one that the Government take seriously, particularly to the extent that they may give rise to reckless behaviour, threatening the stability of financial firms and the financial system. But to the extent that this is an issue related to the prudential oversight of the banking sector, it is fundamentally a matter for the FSA. I can assure noble Lords that the FSA is tackling the matter with vigour. I turn once more to the specific proposals put forward by my noble friend. I should reiterate that I find myself in some agreement with the comments made in Committee by my noble friend Lady Ford and the noble Baroness, Lady Noakes. The proposal to insert a government appointee into the governance structure of independently managed firms would undermine that very independence and weaken the governance links that bind together the employees, directors and shareholders of a firm. I should note that where firms in which the Government have a shareholding continue to be run on an independent basis and the Government are not seeking to interpose themselves into their governance structures, this also applies to their remuneration policies. Having given my noble friend this assurance, I wonder if I might prevail upon him to withdraw his amendment.