Brendan Smith (Cavan-Monaghan, Fianna Fail) | Oireachtas source

I compliment Deputy Broughan on bringing forward this legislation. Over all his years in the Oireachtas, these are issues that he continually highlights and advocates very strongly. Fianna Fáil does not support the Bill, which would create a body with a remit to make regulatory recommendations on the awarding of executive pay and compensation, while introducing caps on remuneration for persons working in large companies or public companies. As a guiding principle, there should be a clear link between remuneration and performance. Notwithstanding this, we believe that such a bill if enacted would have a detrimental effect on retaining existing foreign direct investment, FDI, and attracting new companies to invest in Ireland, who rely on high net worth individuals in executive roles. It would impact not just on foreign direct investment, but also on the very valuable and too often underestimated home-grown enterprises.

In the course of my contribution, I will touch on the following four elements to outline our concerns: priority focus should be on the low paid and improving their job security; successful companies should retain the ability to reward high-performing staff; the threat this Bill poses to FDI; and the effect of regulating and capping executive remuneration on the tax contribution to State, which funds vital state services and welfare supports. Priority focus should be on low paid people and improving their job security. Fianna Fáil believes that the utmost priority should be given to supporting those on low and medium earnings who are finding it hard to make ends meet.

This is set against the background of increased indirect taxes, charges, high rents and housing shortages as well as spiralling child care costs.

The Government has set up a low pay commission. The principal function of the commission will be to examine and make recommendations each year to the Minister on the national minimum wage. The independent body will perform an important function in applying an evidence-based approach to reviewing the national minimum wage. Fianna Fáil looks forward to making a detailed submission to the commission and commenting on the national minimum wage rate. We will not be found wanting in this regard.

The current industrial dispute at the country's largest indigenous retailer and the treatment of workers is totally unacceptable and illustrates the precarious position of those who are in part-time, temporary employment or on zero hour contracts. They have absolutely no security when it comes to hours or pay from week to week. The uncertainty around zero hour contracts prevents people from getting mortgages, entering rental agreements and being able to make financial commitments. It is a precarious position in which to place any worker. Many working families on low to medium wages are also struggling with high rents and spiralling child care costs. It is these people for whom public policy instruments are needed the most to alleviate the day-to-day financial pressures.

Successful companies should retain the ability to reward high-performing staff. The conventional wisdom was that executive pay played a role in the international economic crisis by encouraging excessive risk-taking. Understandably and as a consequence there has been support for the idea that the basic executive pay model should be changed. However, according to the Harvard Business Review, legislating and regulating executive compensation has the capacity to do real damage. The research has shown that the traditional executive pay model of using cash and stock incentives continues to work for the vast majority of companies. It also motivates leaders to steer their companies towards high performance. The pay-for-performance model sets companies up to succeed and the research shows that high-performance company chief executives get increased pay and low-performance company chief executives get far less. That is the view of the Harvard Business Review. Furthermore, chief executive pay can be self-correcting. As a guiding principle and business reality there must be a clear link between remuneration and performance. If high net worth company executives are not performing, boards can change executive pay elements.

Linking remuneration and performance is key. For example, we believe that there is a need for executive pay, particularly in the commercial semi-state sector, to be reined in. There should more effective long-term incentives built in and they should be aligned to performance. In many instances the pay of senior executives in the commercial semi-State sector is far too high. The bonus culture that exists in some companies is unacceptable.

Regulating the awarding of executive pay and compensation would be a real threat to foreign direct investment in our country. Latest IDA Ireland figures indicate that such companies employ 174,488 people in this country. The following statistics show the major economic impact of such investment: some €124.5 billion in exports; €13 billion of purchases from Irish suppliers; €1.4 billion in research and development spend; €8.5 billion in payroll; and €2.8 billion of corporation tax to the national Exchequer.

Thankfully, many foreign direct investment companies have European headquarters centred in Ireland, such as Google and Microsoft. Such FDI companies depend on highly-skilled individuals to work in senior positions in high-pay executive roles. Ultimately, Ireland needs more high-skilled and highly-paid people working in the economy. I believe this Bill would likely act as a deterrent and put at risk the likelihood of such companies locating here. Proscribing that such companies should justify paying high net worth individuals would be a hazardous regulatory environment to operate in considering they employ almost 175,000 people. If the Bill were implemented, would these companies have to justify paying high net worth individuals?

It is not only foreign direct investment companies that we should be concerned with. I believe our indigenous successful companies would have similar concerns. Too often in this country in public commentary we ignore to a great extent our indigenous successful companies - small, medium and large - and the considerable success of many of those companies in the past 20 years in internationalising their enterprises. According to the World Bank's Doing Business report and IBM's annual Global Locations Trend report, Ireland is ranked highly for its business environment. Legislators should be mindful that we should not row back on the conditions that attract foreign direct investment and employment, given also the importance of such investment in creating down-stream activity in our economy. It is a reality that such investment will need high-paying executives to sustain their presence here.

Regulating and capping executive remuneration would also affect the tax contribution made to the Exchequer. That helps to fund vital State services. High net worth individuals are rightly taxed on marginal rates and the premium universal social charge. These taxes and charges incurred are put back into the State or the Exchequer to help fund vital front-line State services, such as our schools hospitals and policing. In addition, taxes on high net worth individuals help to fund the social welfare system, which is vital for protecting the most vulnerable in our society. We all accept that more support is needed in this regard.

The Bill defines high executive pay as €80,000 and above. I will illustrate the total tax contribution of executive pay to the national exchequer. A person known as a high net worth individual on €100,000 gross pays 40% of total salary in taxes, PRSI and USC. For an individual on €200,000, fully 46% of total salary goes to the Exchequer. These examples clearly illustrate the major contribution that payroll taxes of such persons help in funding State services and social protection supports. We need a progressive taxation system and over the years we have developed one. Unfortunately, recent budgets have been regressive.

One instance of what annoys many of us relates to the lecturing from some of the so-called high net worth individuals. I remember, when I was a Minister some years ago, meeting the chief executives of several companies and their senior executives. They were lecturing us on the costs in the economy and the need to reduce costs, in particular, labour costs. I asked the people around the table who were lecturing those of us in the public sector what reduction in salary they had taken between 2008 and 2010. At least I got an honest answer. Each of them said they took no reduction, but they expected their workforce, the people on the assembly line and the floor who were doing the real graft to take it. They expected the Government to implement additional charges on those people. At least one thing I got out of that meeting was the truth from those people. They gave me an answer to the effect that, unfortunately, they had taken no reduction in their salaries.

Successful companies should be permitted to reward high-performing staff. Staff at all levels within a company should be properly rewarded. Further, highly-skilled employees should not be penalised for high productivity. I believe this Bill will place at risk the huge economic footprint of success companies, many of which have come to the country and many of which have grown indigenously in our country. It would put in danger some of the great investments and some of the successful job creation that they have provided.

For these reasons and for the other reasons outlined already, we do not support this proposed legislation. Having said that, I compliment Deputy Broughan. I said at the outset that since Deputy Shortall, Deputy Broughan and myself came to the House in 1992, I have listened on many occasions to Deputy Broughan advocate passionately and strongly for the need to ensure that people are properly remunerated, particularly those on lower incomes. I believe that the most pressing need is for the House to support those on low and medium earnings who are struggling to keep up with spiralling housing and child care costs and who are trapped in unsecure employment. This is where my party will be focusing in policy formulation. We look forward to engaging in putting forward ideas and policies that will help to bring solutions to the most pressing public policy challenges that affect all of us today.

See this speech in context