POLITICS

John McDonnell Warns BAE Systems Could Lose Major Government Contract Unless Boss Agrees To Pay Cut

Shadow Chancellor pledges 'transitional period' to make pay fairer.

14/05/2017 14:14
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Shadow Chancellor John McDonnell has warned BAE Systems risks losing its government defence contracts if Labour wins the election, unless its top boss agrees to a reduction in pay.

Speaking on Pienaar’s Politics on BBC Radio 5 Live, McDonnell  said a Labour government would seek to make pay more equitable and ‘address some of the grotesque inequalities on rewards within a company’.

Questioned on how that might affect BAE chief executive Charles Woodburn, who is expected to take a salary of about £7.5m, McDonnell confirmed that if Jeremy Corbyn becomes Prime Minister, the party would seek to work with the company to cut his pay.

“I think over time, there’s a transitional period on this, over time you’re working with thow Chancellor said many shareholders of large companies were raising the issue of ‘disproportionate’ pay at their annual general meetings.

He did not specify how long a ‘transitional period’ BAE would face, but confirmed it would risk losing its contract - which currently involves building two aircraft carriers for the Royal Navy.

“We’re issuing government contracts, of course we want value for money,” McDonnell said.

“That includes the sort of levels of pay and it includes the fairness and remuneration.” 

Anthony Harvey via Getty Images
BAE Systems could face losing its defence contract under a Labour government if chief executive Charles Woodburn does not agree to a drop in pay.

 The full transcript is below:

John Pienaar: You’re talking about a policy of not giving contracts, so tell me a bit more about that and here’s an example. British Aerospace, that’s the lead British firm building right now two massive aircraft carriers. It’s the biggest ever commission for the Royal Navy, I’m sure you’ve seen their chief executive Charles Woodburn he’s just been  lined up for a £7.5 million pay deal. What do you do about that? Do you scrap the contract or does he have to make an instant massive pay cut for himself? How do you deal with that?

John McDonnell: I think over time, there’s a transitional period on this, over time you’re working with those companies to say actually, this is unacceptable, and I don’t think it’s particularly productive and it’s interesting that you mention shareholders because we’re reflecting what many shareholders are now saying at the AGMs – that this is disproportionate in the way in which rewards are offered within those individual companies.

JP: Yeah but they’re shareholders, and you are the putative government able to make policies and set caps.

JM: We’re issuing government contracts, of course we want value for money. That includes the sort of levels of pay and it includes the fairness and remuneration. In many ways we’re reflecting individual shareholders or groups of shareholders are now saying has to be addressed.

JP: Although of course they are shareholders…You’ve answered clearly, you’ve said a transitional period and then this new regime would apply. So how long a transitional period and does that mean at the end of that transitional period the chief executive of British Aerospace would have to take well in this case a £7m pay cut or no more aircraft orders, no more warplane orders, no more gun orders, whatever it happens to be, radio sets, for British aerospace?

JM: Well you can see what our direction of travel is, what our trajectory is. It’s about fair, more equal, fair pay within individual companies, and we’ll work with those companies, to determine how they can achieve that over time?

JP: Or they lose… in a word you can be clear on this, to be helpful?

JM: Yes. We’d want to work with those companies, we’d want to work with the shareholders as well, to ensure that we reflect the wellbeing of that particular company in the long term and I think the wellbeing is about making sure people are equitably rewarded because the rewards that are given to workers and directors and others is an absolutely critical part of making sure that company is effective…

JP: I know you’ve got no problems with straight answers have you. So how long a transitional period before Charles Woodburn at British Aerospace has to take a 7 million pound pay cut or lose all future contracts for British Aerospace.

JM: It would depend on the agreement that we have with that company and with their shareholders and with the workforce.

JP: OK but that would be the outcome at the end.

JM: Yes. Look we want to get to equitable pay. We want to address the grotesque inequalities that there are within our society, that actually do undermine in many ways the standing of those particular companies.

JP: Because some people say that this policy on its own would completely upend procurement policy in this country.

JM: You know, we would work in partnership with all those who have an interest in the company. Who are they? They’re the shareholders, they’re the workforce and yes the board of directors, and I think there’s a willingness now, as you’ve seen at company AGMs, to address some of the grotesque inequalities on rewards within a company. I think we’re reflecting a general trend across society as well as in business.

JP: I’m not sure they’re contemplating losing – completely losing – billion pound deals. Well they wouldn’t do would they. If they saw, if they worked with us a trajectory which addressed the problem they wouldn’t lose the contract. We’d agree a transitional period with them and I just say to you…

JP: How long, by the way, would that transitional period be?

JM: Well it would be agreed with the individual company. So again I…

JP: Five years, four years?

JM: It would be agreed with the individual company and it would agree with the shareholders and the workforce and I just say again we’re reflecting what’s happening at AGMs at the moment where shareholders are turning up and saying some of these rewards are disproportionate. And do you know some of them are even given when the company isn’t particularly unsuccessful. It’s unfair.

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