If pay isn't transparent, trust goes out the window

THE PROBLEM of boardroom pay getting disconnected from fairness is endemic in much of British business, according to Tony Morgan, chief executive of the Industrial Society, writes Roger Trapp.

As a result, he is using the last months of his time at the organisation to launch a campaign to "get to the point where the words `chief executive, `remuneration' and `ethics' can all appear in the same sentence without raising a laugh", he told a recent conference called by the Institute of Directors to deal with the perceived crisis of leadership in UK companies.

Pointing out that research suggested executive pay rises were far outstripping those for employees, he stressed that most senior executives care about integrity and set a good example.

"But, as in many areas of life, a minority can do an astonishing amount of damage."

He and his organisation are not against high salaries or even very high ones, he says. "It's a question of how they're arrived at, whether they're justified, whether they're transparent." Nor are they suggesting that the problem is easy to solve. As he pointed out, people at the top are in demand and must be compensated for the risks they run and the responsibility they bear.

But Mr Morgan is convinced that this is a legitimate cause for worry on the grounds that "boardroom remuneration, especially if it's going wrong, is of crucial economic and social importance." This is because having a mismatch between corporate performance and executive pay can be demotivating for employees, can create a poor perception of the organisation among customers and lead to a decline in shareholder value.

An Industrial Society study indicates that, while the most successful leaders display a wide range of characteristics, at the heart of successful leadership are the twin features of trust and integrity, and, above all, the need for senior people to be role models.

"The best leaders win trust because they display integrity. The less integrity, the less trust," said Mr Morgan.