There is much to admire in the recommendations today of Will Hutton's Fair Pay Review – and not just as a blueprint for executive remuneration in the public sector, though the inquiry was not asked to consider private companies. In particular, the concept of an "at risk" element of salary would be an excellent way to redress thebalance on bonuses.
We have the financial crisis to thank for the way in which the arguments about bonuses have become so hotly debated. But this should not be a debate for the banks alone.
Nor should the argument be confined to the bonus element of executives' remuneration packages. These are currently constructed with no downside. Should executives hit certain performance targets, they get their bonuses. Should they fail to do so, no matter how much they miss by, the only loss is that the bonus is not awarded. The typical rewards package is a one-way bet.
In addition, the system enables executives to make the grand gesture without really being hit in the pocket. So bank bosses waived their pay-offs in the years following the crisis, but their salaries – generous by any measure – were unaffected. Colin Matthews, the boss of airports operator BAA, made much of giving up his bonus for last year after the December snow brought Heathrow to a standstill, but has just had a huge pay rise.
Mr Hutton's "at risk" pay element might be considered a reverse bonus, a device for making executive pay less of a one-way street. If someone is paid, say, £500,000 a year to run a company, it seems perfectly reasonable to make 10 per cent – or, frankly, a good deal more – of the salary dependent on some minimum-performance standards – like not having to close down for an extended period because of adverse weather for which you claimed to have planned, for example, or not having to ask the taxpayer to invest billions in your bank to keep it solvent.
The long wait for reform of takeovers
Today's appearance in front of the House of Commons' business select committee by executives from Kraft will no doubt prompt another round of teeth gnashing from those who believe the American food manufacturer shouldnever have been allowed to take over the British institution that was Cadbury. That Irene Rosenfeld, the chief executive of Kraft – and the architect of the Cadbury deal – is not gracing MPs with her presence will fuel the fire. Nothing upsets our elected representatives more than those who fail to ask how high when told to jump.
Still, it is to the credit of both the current Government and its predecessor that they have had no truck with calls for a "Cadbury law". This sort of protectionist nonsense would in the long term result in more British companies being frustrated in their attempts to buy assets in other parts of the world. Since Cadbury was sold, British companies have bought hundreds of businesses overseas, large and small, meeting with regulatory difficulties in only a handful of cases.
That is not to say, however, that Britain's takeover rules are not in need of reform. And if today's hearing makes that point again, so much the better, since progress towards an overhaul of the regulation, which was initially given impetus by the Cadbury row, is in danger of stalling.
In fact, the reform process is developing on twin tracks, but both are taking an age. The Takeover Panel is supposed to be making some more minor changes – including a ban on break fees, more demanding disclosure requirements and a shorter put-up-or-shut-up deadline – but publication of its final version of the new rules keeps being delayed. Not least the hold-up seems to be a result of lobbying from the private-equity industry.
The bigger stuff – a proposal for the disenfranchisement of shareholders who have acquired stakes very recently, for example, as well as an increase in the threshold required to back a takeover from 50 per cent – is not part of thepanel's remit. It is waiting for the Government to conclude a review of company law, at which stage it will incorporate the relevant changes. This is also taking too long, with proposals from the Business Department not due until April (and then, presumably, subject to further debate and delay).
The problem with Britain's regulation of takeovers is not thatforeign companies are allowed to buy our companies too easily, but something more serious. Thesystem is opaque, gives too much succour to speculative interests and is a disincentive to owners with long-term intentions.
More victims of privatisation
When the outsourcing company Serco told customers it expected them to share in the pain of the Government's austerity measures or risk losing future business, the public furore rapidly forced it into a humiliating climbdown. Would that we had that option must be the feeling amongst executives of Southern Cross.
For all the complications of the long-term care system, Southern Cross's predicament is simple. Its costs, courtesy of a long-term contract with the landlords of the care homes it operates, are too high, but impossible to cut. Its revenues, on the other hand, are subject to the demands of a Government that is trying to save money by making cutbacks in a less-fashionable part of the healthcare system.
That's a miserable situation for shareholders, of course, but the biggest victims of Southern Cross's troubles may turn out to be the 31,000 elderly residents of the care homes it operates. And this is just the latest of a myriad of examples of why the care-home industry was a poor candidate for privatisation in the first place.Reuse content