Vince Cable has warned a lack of control over executive remuneration and investment churning is leading to dangerous short-termism behaviour in the corporate sector.
Speaking to Money Marketing at the Liberal Democrat conference, Business Secretary Vince Cable says British companies have more institutional shareholders than any other western country.
He says: “Insurance companies and pensions funds are very prominent in that set-up. That has strengths and weaknesses. One of the weaknesses is that many institutional shareholders are not exercising effective control over remuneration, another is there is a churning of investment which is a factor contributing to short-termism in the corporate culture. We want to change that but these are deep, complex problems.”
For answers, Cable has turned to the National Association of Pension Funds and Professor John Kay who launched an inquiry into short-termism in the stockmarket and how to stop it.
In his speech to the conference, Cable announced he will consult on how to tackle the escalation of executive pay. Treasury select committee member Lord Thurso says the rise of an institutional ownership model over one based on individual investors is a major contributing factor to the upward spiral of executive pay.
“He says the pay gap between top workers and the rest has grown exponentially over the last 30 years.
He says: “The old model of ownership has gone, replaced with a corporate code which is basically a licence for remuneration committees to print money.”