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Inquisitors losing sight of the real issues on top pay

The executive pay circus rolls on day by day, and good clean fun it is. The question is whether it is getting us anywhere. Gordon Brown, the shadow chancellor, has now capped his own revelation in the Commons two weeks ago that Ed Wallis of PowerGen benefitted from a £1.2m options windfall last year with a claim that the electricity industry directors as a group stand to make as much as £23m when all their options are exercised.

It is hard to resist taking a slightly malicious pleasure in the sight of overpaid utility directors squirming in public. Some of them are defending remuneration packages that would look over the top even for executives operating in highly competitive international businesses, which for the most part they are not.

Sympathy is also in remarkably short supply in the rest of the business community, which fears that the mud stirred up by greedy utilities, and particularly the water and regional electricity companies, is likely to stick to everybody else.

Sir Iain Vallance, Cedric Brown, Ed Wallis and the rest may not be the worst offenders on salary, in terms of the rewards they earn for the risk and responsibility they bear. But they would blush if they heard what their counterparts in other companies were saying behind their backs.

The media coverage of the pay issue has now gone to the heads of the members of the Commons Employment Committee, normally unaccustomed to attention from the press. The committee has turned what was to be a couple of hearings on pay into a full-scale inquiry. But executive-baiting has become such fun that the inquisitors are forgetting to ask the most important questions.

A quick check of the transcripts of the Employment Committee's first hearings fails to reveal any direct questions from MPs about the core issue, which is the benefits and drawbacks of regulating the pay of privatised utility directors.

If the committee is to come up with a worthwhile report rather than another excuse to get on News at Ten, that is one of the key questions it must answer. And to do that it must drop its obsession with absolute levels of pay and explain how it proposes to relate earnings to performance.

If utility pay is to be regulated, which it may well be under a Labour government, it will be impossible to set up a sensible system without some benchmark against which to measure what directors are worth.

It would, of course, be far better to leave the utilities free to offer handsome rewards to those who genuinely deserve them. Otherwise, these industries will subside into the apathy in which they existed until very recently. But that puts the responsibility for controlling excess firmly on their shareholders, who should be given the opportunity to vote on individual directors' remuneration.