In the City
Rate for the job
Tony Rudd
So now it's official. What we took for the light at the end of the tunnel is after all that of an oncoming train. Economic recovery as part of the scene in 1982 can now be discounted. It never seemed really likely but Treasury and ministerial statements kept on referring to the better things which were to come this year, thus giving the impression that Whitehall could see something which eluded the rest of us. Now it is evident that if it saw anything it
certainly wasn't recovery. There was a short-lived fillip last year but it petered out well before Christmas. Since then output has been absolutely flat. Hopes are therefore deferred to 1983. Unemployment in the meantime resumes its upward path. What has been achieved, of course, is the elimination of wage-push inflation; even the other varieties are now abating fast. So one at least of Mrs Thatcher's major objec- tives has been achieved. Perhaps the trouble is that it is not just one of her objectives but rather her main objective. In which case the battle is won but the economy is becoming a desert. It has always been said that getting the rate of inflation down is the essential precursor to recovery. However although it may,have been a necessary pre-condition, it is not in itself a sufficient one. That is evi- dent for us all to see. Instead of stag-flation we now have stag-deflation. And it doesn't really seem very much nicer.
In the meantime during the long tedious hours that the markets are open but doing practically no business, attention was diverted last week by the rather dramatic events at the Marks and Spencers annual general meeting. As everybody will now know, details emerged at that meeting of arrangements whereby the company pro- vides its directors with houses, at very little cost to the people concerned, and in a man- ner that gives them the option to purchase the house in later years. These ar- rangements were made because the or- dinary system of cheap mortgages for employees cannot be used in favour of directors under the Companies Act. Disclosure was only made because of the new Companies Act recently enacted. Several shareholders, pre-eminent amongst whom was a representative of the Post Of- fice Pension Fund, objected to the earlier non-disclosure and the failure by the com- pany to put the scheme to shareholders for their approval. The criticisms weren't so much directed against the scheme itself as against what the critics saw as a want of frankness. The meeting apparently grew a little heated, as might be expected. The directors were in the event supported by a massive vote in their favour but the matter does throw up some interesting aspects of capitalism as we know it.
To begin with, of course, Marks and Spencers is the absolute ornament of that system so far as this country is concerned, combining efficiency and service to the customer with excellent staff relations and a phenomenal commercial success. For most people's money M & S can really do no wrong. And if somebody is complaining of what they are doing, then the parallel is with those who complained to Churchill about Montgomery, drawing from him the retort that he wouldn't mind the rest of his generals being equally eccentric if they could be that good. There is indeed something very odd about M & S being a test case, as it were, of institutions laying down the law about director's emoluments.
Indeed the notion of anybody connected' with the Post Office criticising M & S
is, from the viewpoint of the consumer, grotesque. Couldn't we arrange for M & S to take over the Post Office? But of course that is not the point. The issue is about the accountability of the companies with regard to such matters as how they reward their top brass. The first point to be made is that this probably wouldn't be an issue at all if we didn't have institutional shareholders. The private shareholder tends not to worry about this sort of thing so long as his com- pany does well. But the institutions are dif- ferent. They regard themselves as the guar- dians of shareholders' rights — in a manner which is much more professional than that of the average shareholder who only cares about the results. They are interested, not in just what is on the bottom line, but in the numbers and and the methods used on the way through. Clearly they are going to be doing a great deal more of this kind of monitoring. Companies can expect them to be getting up at future meetings, quite ir- respective of what is being reported by way of results, if there are matters arising similar to those which caused such a rumpus last week as Marks and Spencers. We have quite clearly entered into a period in which the in- stitutional vigilantes are on the war path.
What can companies do about it? The simple answer is to pay their executives what they think they are worth. It has long been the case that senior executives in this country have been paid salaries substantial- ly less than their opposite numbers earn either in Europe, or more especially, in America. If Marks and Spencers were, for instance, an American company, there would be no need for such housing schemes as that which the company is now operating. Directors wouldn't need these kinds of perks. Quite simply they would be paid a sum which in aggregate would be worth all that they are getting now in- cluding the benefits derived from these kinds of arrangements. American chief ex- ecutives own their own houses and their cars; they have got enough money and are paid sufficiently large salaries to afford to do so. It is quite ridiculous in this country for companies to feel that they have to dole out remuneration partly in salary and partly in perks. The latter are bound to include ar- rangements which look shifty even if they are justified or put to the shareholders and approved. The whole thing is so undignified and unnecessary. Of course for years in this country the tax system encouraged all this. But at least under this government the marginal rate of tax on earned income has been brought down to a more tolerable level. It should of course, have been brought down to a lower figure still, say a maximum of 50 per cent. Then there would be support for a measure in the next Finance Act effectively making it impossi- ble to give anybody any perks at all. But to make that system work it would not only need the tax hurdle to be lowered, it would also require companies to pay the real rate for the job which is a darn sight higher than is generally recognised in this egalitarian, and not all that successful, economy.
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