Greenbury prepares for attacks from all sides

The M&S chairman's report on executive pay comes out on Monday. He talked to Peter Rodgers

Sir Richard Greenbury, the famously tough pounds 800,000-a-year chairman of Marks & Spencer, was sitting this week in his office in Baker Street, wrestling earnestly with a series of insoluble problems about pay differentials.

A letter had arrived from an M&S shareholder who was married to a nurse. "He said he thought my salary was obscene. When he saw what she was earning and what I was earning, how could I justify it? The answer is I can't. It is very, very difficult from that point of view."

Sir Richard also mused on awkward contradictions rather closer to home. "The whole thing is crazy. Why should my secretary earn more than my son, a teacher, and a first class nurse put together? Where is the sense in all this?" And why, at the other end of the scale, did the public object so vociferously to paying a successful company chairman pounds 600,000 or pounds 700,000 a year but not to the idea of paying Cilla Black "pounds 1.5m for running a tuppeny-halfpenny programme." Sportsmen and women also earned huge amounts, and so did soap stars, "but it doesn't produce the same sense of envy as businessmen do", said Sir Richard.

Bruised from the stress of five months of media spotlight since he accepted the chairmanship of the review committee on top pay, which reports on Monday, Sir Richard returned to his struggle with the rationale of differentials several times during a 75-minute interview.

At no point did he attempt to offer a comprehensive answer, beyond a brief reference or two to the impact of market forces, and in his own case to the fact that M&S is Europe's most successful company in a retailing industry that already pays managers well above the average.

Sir Richard simply thought the problem of reconciling different views on pay was insoluble, and he was probably right.

Taken out of context, it would be easy to use this cantankerous, plain- speaking and immensely successful businessman's remarks about nurses and teachers to make fun of him, or imply he is a hypocrite, which was the fate of Sir Iain Vallance, chairman of BT, when he unwisely compared his job with that of a junior hospital doctor.

As chairman of the committee on top pay, Sir Richard is already bracing himself for political and media flak for being too soft, but expects some criticism from business for going too far. He joked that he will have to take a tin helmet to the TV studios for his interviews.

But Sir Richard's intention was to make a real point, about the causes of an angry national debate that has brought his report on pay near the top of the political agenda.

Nobody has yet constructed a rigorous justification, complete enough to satisfy the majority of people, for the immense pay differentials between equally worthy activities.

The subject of pay, said Sir Richard, is one on which it is almost impossible to get any two people to agree: "Look back in history and no government has come up with a system, including personal taxation, that is fair and can even out market forces."

A committee on top pay that includes four industrialists on salaries from pounds 650,000 to pounds 800,000 a year has, not surprisingly, proved an easy target.

Sir Richard said: "In some ways the most annoying issue has been the way all the press, including the so-called qualities, have tried to float ideas and, worse than that, criticise the report as not having gone far enough before it's ever bloody well written.

"More disturbing is the extent to which the press have attempted to undermine the validity of the report by criticising the salaries of the industrialists on the committee. It started with 'fat cats,' in the 'gutter press', and was picked up by all the press, including the Independent," Sir Richard said, with an accusing look across the table. "It was presumably to discredit our findings, because if you can discredit the committee you can discredit our report."

Acknowledging that the four highest paid industrialists on the committee are all extremely well rewarded, he said: "We run companies that in all four cases are in the top 10 in the UK, in the top 20 in Europe and in all cases are world class companies."

Sir Richard argued that he could earn five times as much in America, but preferred the quality of life in the UK. And rejecting criticisms of his 17 per cent pay rise last year, he said that over two years his earnings rose 11.5 per cent, compared with an average 9.2 per cent for staff, a range of increases for staff over the period of 6 to 15 per cent, and a 35 per cent rise in the share price.

Money was important to executives, Sir Richard believed, but so was career progress, a poignant remark, perhaps, from a man who recently admitted to a tabloid newspaper that his wife was justified in leaving him, because he was married to his job.

The bruising media intrusion in his life - "the extent to which I was publicly attacked as a fatcat by every newspaper in the country" - has now made Sir Richard determined to drop all his connections with the top pay issue once the report is published.

He said: "I have done my duty, I was asked to do something. I could have said no - what's in it for me? With the help of the CBI I collected a very high quality team together, and we have worked our socks off. Some of us worked every weekend for five months with no personal life at all."

Sir Richard has now devised a standard letter of refusal to requests for him to appear at conferences on pay. "It says I have no wish to do so, primarily because I am not an expert on remuneration and equally because I never want to hear the word remuneration mentioned again in my presence."

He has in any case to face a hip replacement operation later this summer, so would not be available even if he wanted to be.

Sir Richard said he hoped that after his committee bows out, the Cadbury committee on corporate governance, which is about to be relaunched with a new chairman, will agree to monitor progress on the code.

But ducking a long-term involvement will not help Sir Richard next week, when he has the tough job of attempting publicly to reconcile the demands among politicians and the public for a crackdown on executive greed, especially in the privatised utilities, with the reality that his committee is a voluntary body set up on the initiative of the CBI. It has no official role.

That means the code of good practice at the heart of the report will be useful only if it is accepted as reasonable by Sir Richard's peers in British business and the City.

Despite enormous backbench pressure earlier this year for something to be done about pay, Sir Richard denies feeling bullied by Tories or Labour to produce results.

He says: "The Government have put me under no pressure whatsoever - I have had no meetings at all with the Prime Minister to discuss the matter, and only one half-hour chat with Michael Heseltine, to tell him what aspects of pay and remuneration we were looking at."

He added: "The Labour Party have gone out of their way to say that their criticisms aren't of private sector pay awards but are directed at the utilities."

Surprisingly, given widespread expectation that the report will use tough language about privatised utility pay, Sir Richard saw their abuses as "on a very minor scale . . . It's a bit like saying everybody has been ripping off pension funds since Mr Maxwell."

While some of the utility share options were now regarded as suspect, Sir Richard refused to throw stones at individuals. He said: "Why should we criticise people for doing something perfectly legal? In a sense the Government floated them [the utilities] off too cheaply in many cases, and underestimated the costs that could be taken out of these businesses to drive profits." Sir Richard detected a mood of change and a rethink among some utility boards on pay policy.

In the private sector, Sir Richard's main concern was not share options, which he defended as perfectly legitimate as long as they were used with discretion. Rather, he wanted to ensure remuneration was based on rewards for success and to stamp out payment for failure.

He was braced for attacks on his report next week from politicians and the press: "Labour will find fault with what we have done with the privatised utilities but they will find it very difficult to attack what we have done with the private sector.

"They can't help but say we have gone considerably further with the private sector than they thought we would." The commitee itself, which includes investors as well as business and City figures, has had what Sir Richard admits have been "some terrific rows and disagreements", and these disputes are bound to be reflected in critical business reactions to the report.

Praising colleagues for bowing to the majority and agreeing a unanimous report, he admitted the final result included recommendations that he personally disliked. "But I have accepted that, because you can't ask people to behave that way if you aren't prepared to yourself." One area of the report expected to go further than Sir Richard himself would have preferred is the extent of disclosure of directors' earnings. "I rather capriciously said that if we go this far - which really does bare your navel to public scrutiny - why not do it for the professional classes, for lawyers, those professionals in the City, and what do the editor of the Sun and some of the leading journalists earn? I think the amount of disclosure will make a lot of people unhappy."

Another contentious area for business is the section on directors' contracts and "the extent to which we have made it very difficult to make big payments for failure in the future".

He believes that while the committee's approach to the privatised utilities will be seen by sensible people as quite tough, it will upset some of them. So will its advice on share options and long-term incentive schemes.

"Yes, I think a lot of people won't be very happy but the committee takes the view that if we don't please anybody - if we go too far for some and not far enough for others - we have probably done a good job."