A report not of the real world

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A report not of the real world

It is not hard to predict that the Greenbury report, now due in the middle of July, will be a damp squib. The committee has worked hard and come up with a draft that will meet with widespread approval in industry and the City. Unfortunately, that virtually guarantees that none of the expectations raised for it in the wider world will be fulfilled. The nuances of reform in remuneration committees, disclosure, board structure and incentive schemes will be lost amid complaints that the committee has failed to come up with a workable formula for outlawing executive greed. Nor is it just Gordon Brown, the shadow Chancellor, who has raised expectations of the committee's work to unrealistic levels. The Prime Minister has done as much by publicly leaning on Sir Richard Greenbury to come up with proposals that could be backed by legislation, allowing the Government to look as if it is doing something vigorous.

Nobody would object too much to legislation on disclosure, though changes to the Stock Exchange yellow book would be simpler and quicker. The law might further be used to widen the area in which executive remuneration must be approved by shareholders. At present, this is only required when it involves the issue of new shares under option schemes. The committee will recommend shareholders be asked to approve all long-term incentive schemes in advance, which might require also require a change in the Company's Act.

But the idea that the law can or should be used to control remuneration levels is just plain ridiculous. Not only would it involve the impossible task of defining what is acceptable pay, it would also be an invitation to the clever-clevers who make a living out of this sort of thing to make an ass of the law, which they will do in double quick time. There is no way incomes policy can be applied to a minority at the top, and for politicians on either side to pretend otherwise is dishonest.

All the law can do in the real world is to make it easier for shareholders to influence remuneration. Even here, Inspector Gordon Brown has been fingering the wrong villains. Fund managers, wielders of the block vote at shareholders' meetings, determine voting policy at 58 per cent of pension funds and trustees do so at only 28 per cent, according to an NAPF survey last year. But it is the trustees who hire and fire the managers and who have the ultimate power, and it is their behaviour that merits the closest look of all