Business View: Oh lead us not into temptation, for thine is the multi-million payoff

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The Independent Online

I can't help feeling sorry for Lord Black of Crossharbour. Not only is the Canadian press baron the only peer to take his name from a stop on the Docklands Light Railway (I look forward to Lord Smith of Mudchute or Baroness Brown of Pudding Mill Lane), but also, faced by pressure from impertinent shareholders, he has had to agree to a rather draconian pay cut.

From now on the maximum salary he is able to receive from his media group, Hollinger, is $6m (£3.7m) a year.

It will hardly keep him in antiquarian books and fine wine.

The fact is the company, which owns our rival newspaper The Sunday Telegraph among its media assets, has had some little difficulty paying cash it promised to one of its myriad classes of shareholders. Also, Lord Black and his fellow managers have just received $73.7m for agreeing not to compete with newspapers the group has sold in recent years (something that so agitated one shareholder, it is threatening to sue Hollinger). Given these sort of corporate governance issues, it is little surprise that Jean-Pierre Garnier, GlaxoSmithKline chief executive, chose to expound on the justification for his multi-million pound golden parachute in a Telegraph title.

J-P Garnier's interview, which included the memorable line "I'm not Mother Teresa", came a few hours after shareholders voted down his new remuneration deal. It was calculated by some people who should have known better as being worth £22m if J-P lost his job. But this included some stuff he has already been awarded, and could be as little as £5m. Still, most of us (bar perhaps Lord Black) might struggle by if we were sacked and given a pay-off of that order.

The Glaxo revolt was a Rubicon waiting to be crossed by shareholders. They have been agitating to keep a lid on excessive pay-offs for some time. (At this point I have to correct a lot of what you might have read this week. This is not a "fat cat" row. Shareholders are happy for executives to get big money for doing well - no one is complaining about the £2.75m bonus being paid to Stanley Fink, chief executive of the outperforming Man Group.) Glaxo, being a British company run out of Philadelphia along American lines, was bound to be in the firing line.

J-P Garnier was the focus of this furore, but I feel chairman Sir Christopher Hogg, should have done more to avert the crisis before it happened.

The argument of investors is simple. If you fail, you should not get massive rewards. So no contracts of more than a year. No "change of control" clauses that accelerate payments. No early vesting of share options or long-term incentive schemes if the company is taken over or the executive is kicked out. No "payment for failure". And it's not even a new argument. Shareholders have been moaning about this for nearly a decade. Only now, armed with more disclosure by companies about executive pay, are they ready to vote the deals down.

So why are directors continuing to load their pay deals with this sort of jiggery- pokery? The answer is fear. They fear that the pressures of running a public company are such that they face being fired at any time. And often for reasons they don't see as valid. And they could have a point. The average "job life expectancy" of a chief executive of a British public company has come down from more than five years a decade ago, to 4.4 years in the late-1990s and just 3.9 years now.

So can you blame these non-Mother Teresas for wanting to feather their nests while they have a chance?

It is up to shareholders (many of whom enjoy six or seven figures salaries) and the company's non-executive directors to resist this. And they need to do this for the good of the companies and the integrity of the executives.

J-P Garnier is not a bad man. He is trying to change the rather aggressive nature of Glaxo, which had shown itself in the row about cheap Aids treatments in developing countries. He recently made a fascinating speech about the social responsibility of large corporations.

Is anyone taking any notice? No. To the man on the Clapham Omnibus, to leader writers of newspapers, and to the investing public, J-P Garnier is a fat cat who, when offered a particularly tempting bowl of cream, said "I'd like that please". Should he have refused the cream? That's the wrong question. He should never have been offered it in the first place.

j.nisse@independent.co.uk

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