CENTRE POINT
Annual salaries of half a million pounds and above are pure anthropology
SIMON JENKINS
Top people's pay is, after sex, the most common object of public prurience. It is also the most surrounded with mystery — and nonsense. We should therefore remember the wise dictum of J.K. Gal- braith. The salary of the chief executive of a large corporation, he wrote, has nothing to do with the free market or with economics. 'It is in the nature of a warm personal ges- ture by the individual to himself.' This ges- ture is always heartfelt and sometimes sin- cere. That is why, like the latest rises at British Gas and British Steel, such gestures tend to surface just before Christmas.
What is different these days is the inter- vention of Father Christmas, otherwise known as the non-executive director. Before his arrival on the remuneration scene, the chief restraint on top pay was a sense of dignity on the part of bosses them- selves. The perks might flow, but crude salary need do no more than keep two houses, four children and a past and pre- sent wife in reasonable working order. Phone number salaries' were for foreigners and City spivs.
The Institute of Directors and the Cad- bury Committee on corporate governance changed all that. They said that top salaries should be fixed by non-executive directors. The effect has been to fling open the till and tip gold dust over the boardroom table. Non- executives are like pre-Reformation cardi- nals. They cleanse conspicuous consumption of the sin of avarice. Executive pay ceases to be a personal matter and becomes a glory of capitalism. I have sat on many remuneration committees. They operate as follows.
The boss lunches the senior non-execu- tive director. He is 'worried about differen- tials following the arrival of the new finance director'. Noses are out of joint . . . the company needs to show it is in the mar- ket for top talent. There is desultory talk of calling in consultants before the conversa- tion turns to the 'always delicate' question of the boss's own pay. He is suddenly Peck- sniffian. He murmurs about 'not seeking anything for himself . . . matter of inter- industry comparisons . . company now with an international dimension'. At this the director smiles reassuringly and remarks that 'the non-execs know you are shockingly underpaid, Jim'.
The scene shifts to the remuneration committee at which, as per Cadbury, only non-executives sit. 'I respect Jim for the way he raised the matter,' says the senior director. 'He is on £100,000, but is clearly restless. It would cost four times that to replace him.' No director dares suggest they call the bluff. One says, 'I think he is worth more.' A third quickly adds, 'I believe in paying the market rate.' Others fear their silence will leak. Most share directorships with Jim. He might even be in a position to fix their own pay. A private auction in generosity begins. Considerations of public relations, staff morale or share- holder reaction vanish. A tacit conspiracy is in progress to raise corporate salaries. Gal- braith's 'warm personal gesture' has become a class action. The paybill impact is trivial. The conspiracy is victimless.
Yet these remuneration committees are to John Major's Tory party what property speculators were to Edward Heath's. The general public sees them as institution- alised greed. There may be a small number of companies whose transformation demands the talent of a particular man who must be enticed from another job for a high fee. But such market factors apply in few cases. The bonuses, incentives and option schemes of contemporary corporate remu- neration are mostly pure self-generosity. As for Mr Major's remark that salaries are for shareholders to decide, it shows how little politicians understand the working of busi- ness. Shareholders are represented by pen- sions funds whose executives are party to the same conspiracy.
If the scions of capitalism wish to grab company money for themselves, so be it. We can decline to buy their products or badger ministers to punish them through price reg- ulation. What is hypocritical is the claim that such money has anything to do with market capitalism. The remuneration committee of British Gas last week suggested that a 75 per cent pay rise for its chief executive, Cedric Brown, was necessary to bring him into line with companies of 'comparable turnover'. Why? I have never known a businessman lose out in a deal because his opponent earned more than he did. Salary comparabil- ity was a disastrous and inflationary basis for public sector pay under the Clegg formula In the late-1970s. How ironic that it has resur- faced in the privatised utilities. British Gas also implied that it would cost £475,000 to replace Mr Brown, who is cur- rently on just over half this salary. Although he was not likely to leave before retirement in six years' time, his putative successor allegedly needed the comfort of a generous pay-packet in prospect. Besides, this was not really a pay rise but an entrenchment of bonuses in salary. As for the public, if it did not like the deal then it should not have pn- vatised British Gas in the first place.
I do not normally agree with the Labour Party, but for this to be described as 'two fingers to the public' is not far from the mark. If these are supposed to be free mar- ket salaries, they should be tested as such. All the talk about median incomes in the upper quartile of the Footsie 100 is so much consultants' pap. If an executive wants a huge rise, let him put his greed to the test in the market place: resign and compete for his job. Annual salaries of half a million pounds and above are in no sense needed. They are pure anthropology: sYnt- bols of a place in a pecking order, maclus' mo, prestige. They are corporate primates beating their breasts in the jungle. On one matter I am with Mr Brown and his chairman, Richard Giordano. The British Gas package is at least an attempt to get away from incomes boosted hY bonuses linked to a company's share price. This obscene worship of the short term distorts British industry. Senior executives at British Steel last week received 'performance bonuses' of the order of £70,000 each, mostly the out- come of cutting jobs. When a man earns £140,000 a year, what conceivable extra performance can he put in to justify such a huge extra payment? This brings onto the executive floor the ethos of the City speculator. That exeett- tives on such salaries should be thought unable to perform at full burn without added incentive is nauseating. It reflects url their conunitment and is an insult to those who work hard on fixed pay. For them 10 ask their subordinates then to show 'PaY restraint' is preposterous.
Simon Jenkins writes for the Times.
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