By Paul Goodman
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Ed Balls says today that directors shouldn't receive 30 per cent of
their salary for five years – and he has cover. The review of how to tackle the "short-term, fast buck" culture has been carried out by…Sir George Cox, the
former director general of the Institute of Directors. Take that, Conservative Party! Up yours, company directors! We've got a former IOD head honcho on our side!
As it happens, I've just been talking to the IOD, and while it isn't going to diss Sir George its view of the plan is rather cool. It's contributed to the review and agrees – who doesn't – that short-termism in business is a problem. But it would rather see it tackled by more shareholder power, and is "sceptical" about top-down control of pay.
The review also says that "the Governance Code could also be amended so that non-executive received
half their payments in shares, which would not vest for five years or
until the director had left the board". Sounds to me like a perverse incentive to take a short-term view and then leave the board early – a classic illustration of T.L.O.U.C.*
And is directors' pay really the main driver of short-termism? If a company's business aims are fixed on the short-term, then isn't that the real problem, rather than pay and bonuses? But it is relatively easy, of course (not to mention headline-grabbing), to get the state to intervene on pay; much harder, though often more important, to turn round a company's culture.
Whatever the merits of the plan may be, it's surely a "lurch to the left" from Balls. So we can expect it to be described as such first by the BBC and the Guardian and the Independent, before the phrase is duly picked up in the Times and the F.T, and then repeated around the echo chamber of the blogosphere until everyone…oh, hang on a minute.
*The law of unexpected consequences.