Progressive governments on both sides of the Atlantic are leading the way in clamping down on executive pay. Last week Barack Obama moved to cap the salaries of managers whose companies are receiving state support and to put restrictions on corporate severance packages. The British government has also firmly committed itself to ensuring that bonuses reflect performance. This deserves our firm support. High CEO bonuses for poor financial results are totally unacceptable. The crisis and the executive greed it has exposed show once again the need for a renewed debate on corporate social responsibility and is yet another example of the failure of self-regulation.
In September the European Parliament adopted a resolution based on my report on new and better regulation of the financial markets - covering all players including hedge funds and private equity. Despite European conservatives and liberals watering down the proposals, the Parliament agreed that reward packages should reflect losses as well as profits. It also calls for full and transparent disclosure of remuneration systems. Since then I have been in correspondence with President Barroso, who assures me that the European Commission will comply with the Parliament’s demands and will come forward with new regulation for all financial players. EU leaders meeting in Berlin last Sunday agreed that new regulation covering hedge funds and private equity should be an EU demand for the G20 meeting in London. We will find out this week whether the EU is prepared to do what it preaches, as Thursday marks the start of European Commission hearings on future regulation of hedge funds and private equity. I fear that Charlie McCreevy, the European Commissioner supposedly responsible, is still pushing self-regulation for private equity: this is just not good enough. Watch this space for European developments on new financial market rules.