How Greenbury has boosted executive excess

'It is hard to know, what, if anything, should or can be done to halt the ever-upward spiral of executive pay. To attack it through the taxation system would only undermine incentive as well as driving some of our best high-earning talent offshore'

It is as if the Greenbury Committee on top executive pay never existed. This is the season of annual accounts and in all but a few rare instances, their pages faithfully record that executive salaries and perks continue to motor upwards, in many cases at a rate of knots. True, disclosure has generally been improved by the Greenbury recommendations, but if the idea was that this would shame remuneration committees into paying their executives less, then Greenbury has failed in its purpose. There is not the faintest glimmer of restraint. If anything the effect seems to have been rather the reverse.

By exposing the excess of a few, greater disclosure has tended to drag up the rest. Nor is the phenomenon confined to the boardroom, many executives claim. When the directors of often quite small publicly quoted companies are revealed to be paying themselves so handsomely, it is hard to resist the demands of larger company executives who, though only running divisions and subsidiaries, are none the less responsible for much bigger organisations.

Paradoxically then, enhanced disclosure seems also to be raising "the going rate". The evidence of this is not just anecdotal; it is also confirmed by the statistics, which show the number of top earners (pounds 100,000- plus) growing as never before. In a period of widespread wage restraint, low inflation and very considerable corporate downsizing, you might expect the reverse to be occurring.

Some executives attribute the fault in all this to the new disclosure rules themselves. Without Greenbury, it is claimed, there wouldn't be all this inflationary benchmarking of salaries and perks. Tosh. The implication of this argument is that the tide of excess could be held back by keeping the privileges of the few secret from the rest. In the modern world such obfuscation would be as unacceptable as it is unrealistic.

Even among the privatised utilities, which sparked the "fat cats" row in the first place, there is little evidence of any change of heart. True, the unreconstructed share option schemes which made many utility bosses into overnight millionaires, are on the whole disappearing. Since water and electricity share prices have already enjoyed most of their upside potential, however, their demise hurts no one. Instead, new and even better wheezes are being devised - the long-term, performance-related bonus being the most apparent. Take the one revealed in the National Power accounts earlier this week. According to the small print, executive directors can hope to boost their base salaries by 50 per cent through short- and long- term bonus schemes by showing "sustained, solid, relative performance". Er ...this might sound a bit old-fashioned but is that not what salaries are meant for? It would appear that National Power directors earn their bonus just for doing their job.

The package available to National Grid directors is in some respects even worse. The share option scheme has gone, to be replaced by executive bonuses which - and this is the good bit - if invested in National Grid shares is doubled by the company in the form of an equal and opposite number of free National Grid shares.

Nor have the rewards of outright failure or worse been much damaged by the turgid and largely pointless meanderings of the Cadbury and Greenbury committees. True, Peter Robinson, former chief executive of the Woolwich building society, dropped his claim for compensation but he still walked away with a lump sum and pension that many would kill for. And to prove the old truism that once on the merry-go-round, it is hard to fall off, he's already being harrassed by the headhunters. So much for the argument that executive pay and perks merely reflect the insecurities of the job.

It is hard to know, what, if anything, should or can be done to halt the ever-upward spiral of executive pay. To attack it through the taxation system would only undermine incentive as well as driving some of our best high-earning talent offshore. But to those who argue that there is nothing wrong with it in any case, because it provides something to aspire to and because top executive pay is only a tiny and insignificant proportion of a company's costs, there is a counter. The evidence is that excess in the boardroom is driving up executive pay across the board. Even in today's flexible labour markets, there will eventually be a knock-on effect further down the labour force. Regardless of the moral rights and wrongs of the process, then, the long-term effects on corporate health may be highly damaging.

Bock scores a point, but a long game awaits

It was a long and bitterly fought grudge match, but ultimately flamboyant old world skills of Tiny Rowland were no match for clinical finish of the modern day German. As on the football pitch, so in the world of business; what the Germans want they tend, eventually, to get.

Dieter Bock must have wondered at many times since boarding Lonrho whether it was all worth the candle, but yesterday he almost smiled. Unwinding the sale of a third of the Metropole hotel chain to the Libyan government will surely be seen as the turning point in his attempt to rebuild the flawed empire Tiny Rowland collected so obsessively over the years.

With the Libyans queering the pitch, there was no way Mr Bock's ultimate break-up plan would ever go ahead. Now it seems there is little that can stop Lonrho's hotels and African trading operations being floated off by Christmas. Game over.

Quite what Colonel Gaddafi will think of the deal his minions have struck is another matter. Simply adding interest at 6.6 per cent to the $307m he paid Tiny in 1992 is hardly a fair reflection of what has happened to the hotel market in the past four years.

Tiny's last desperate throw of the dice was made at the low point of the post-Gulf war international travel slump, since when the tourist and business travel industry has boomed. Lonrho has managed to hold on to all the upside while the Libyans took the equity risk.

The most interesting aspect of Lonrho's dismemberment, however, is Mr Bock's apparently new-found interest in running a far-flung African trading empire. It remains to be seen whether developing property in a highly developed European market will prove an appropriate training for the finger- in-the-air trading skills demanded in most African countries. Tiny's greatest contempt was reserved for his successor's aspirations in the region he believed no one else could ever really understand. He thought the whole tawdry battle over his expenses only underlined how little Mr Bock knew about doing business in the Dark Continent.

Even if Tiny is proved wrong on this, and the break-up of single-country fiefdoms into pan-continental agriculture, motors and property businesses starts to bear fruit, it is not immediately apparent that Africa is the coming emerging market Lonrho thinks. As long as its economies remain almost wholly dependent on the latest harvest, it is hard to see Mr Bock's new baby providing the quality of earnings London investors will demand. His toughest game is yet to kick off.

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