Lord Sikka (Lab)

Gosh—my turn again. This amendment seeks to replace the words “performance-related pay” with “total remuneration”. At Second Reading, I raised the question of how the ban on bonus payments was actually to be implemented. At the time, the Minister did not reply and, to my mind, the question still stands. Over the years, I have written many executive remuneration contracts and seen many others; some of them contain many odd bits. For example, so-called performance-related pay may come in the form of cash, shares, share options, chauffeur-driven cars, even gardeners, rent-free accommodation, children’s school fees and much more. Published company accounts never really make it clear what the complete components are and the executive remuneration contracts are never filed at Companies House for anyone to see what exactly they are getting paid for. The value of some of these payments may not be known until some time in the future. For example, the value of a share option granted today and exercisable after a certain number of months or years would not be known until the date of the exercise. So how will the regulator decide whether any bonus payment is materially significant and deserving of a possible ban? Somebody might simply say, “This does not appear to be significant at the moment, but it could be significant by the time it is exercised”. Companies can also shift the basis of bonus plans to retain or attract executives. If Ofwat or any other regulator were to impose a ban, it might change the weight attached to the part of the performance that may be considered by the regulator, and thereby defeat the whole objective of imposing any ban. The company can also easily bypass any restriction on bonus payments by adjusting the bonus pay. It can simply say to directors, “Your basic pay will increase and your bonus pay is down”. As many water companies are part of giant conglomerates, directors can be offered seats on other company boards so that their total remuneration is no less, even if a bonus is banned. So it is not clear to me how this ban is going to be implemented. It looks good on paper, but in practice I have yet to hear the details, so what I am suggesting is that the attention needs to focus on total pay, not just bonuses, because bonuses can easily be bypassed. That is why this amendment seeks to substitute “performance-related pay” with “total remuneration”. I beg to move.