OUTLOOK : Executive pay gets the Sir Humphrey treatment

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The Independent Online
Sir Humphrey himself could not have done a better job of it. The ever-more-scandalous issue of executive pay has been shuffled off not only to a review committee but to a non-governmental one at that.

True to form, there were denials all round that the pay review group was initiated by ministers. Then again, to allow the CBI to take all the credit wouldn't be right either, would it? Privately, it is therefore admitted that the move emerged as a resultof heavy hints from Michael Heseltine, President of the Board of Trade, that Something Must Be Done.

But can this committee of directors, institutional shareholders, the Stock Exchange and possibly one or two other interests (there is a crying need for representatives of small shareholders and employees) produce any radical reforms? Sir Richard Greenbury, the chairman, hardly faces an easy task.

Two of his members, the Institute of Directors and the National Association of Pension Funds, already disagree, having produced executive pay policies with very different views on important points of detail - such as the annual re-election of non-executive directors. There is also evidence that the NAPF and the Association of British Insurers are well apart on the issue. To make matters worse still, the CBI and the IoD rarely agree on anything.

It certainly seems unlikely that the committee, three of whose four industry recruits named so far earn more than £500,000 a year, will be able to produce much better than a lowest common denominator of its members views. No prizes for guessing, for ins t ance, whether they will adopt the attractively tough ideas of putting directors' pay to a shareholders' vote or of obliging pension and insurance funds to cast their votes on pay resolutions. They may also find the NAPF's idea of annual re-election of n o n-executives - designed to ensure that a remuneration committee is kept on its toes - too much to stomach.

A few platitudes will not be hard to agree on. Nobody could quarrel much with the principles that pay and contracts should not reward failure, that remuneration must be tied to improvements in shareholder value and that boards must be sensitive about thetiming of pay increases. The committee will probably also be able to agree on detailed disclosure of all directors' pay and bonuses, though some top industrialists are already lobbying against this.

Sir Richard is not a man afraid to speak his mind or take tough decisions. He might just produce something worthwhile from this not very promising initiative. At this stage, however, it looks as though the Sir Humphreys of this world have neatly managed to play the ball off into the long grass.

Conglomerate finds the going tough Greg Hutchings must begin to wonder what he has to do to please the stock market. The value of his handguns to Mr Kipling cakes conglomerate fell by a fifth last year. As if to rub salt into his wounds, news yesterday of a 19 per cent increase in earnings per share, half as good again as the rest of the market, and the promise of a full-year dividend at least 15 per cent higher, was greeted by a yawn of indifference.

Tomkins is one of the great success stories of the recession. Since 1984 it has compounded earnings per share at 28 per cent a year, with shareholders seeing their income growing almost as fast. It ended the year with £200m in the bank. Anyone who invested £1,000 in Tomkins 10 years ago would now have shares worth £5,000. The same amount invested in the market as whole would have risen to only £2,000.

The City is right, however, to concentrate on the future. There are legitimate concerns about where the group goes from here.

RHM has confounded the sceptics who wondered what sense there was in putting bread together with lawn mowers at the time of the acquisition two years ago. Its return on sales is now almost acceptable, and with a year to go of a three-year cost-cutting p r ogramme there is still plenty of scope for improvement. But once that process is complete, RHM will be a dull, mature business and the group will have to look elsewhere for growth.

With the US economic cycle likely to begin turning against Tomkins over the next couple of years, growth won't come from inside, so if Mr Hutchings is to maintain his enviable record he will have to get out the cheque book again.

The problem he faces is the one already experienced by his larger rivals, Hanson and BTR. When you get to a certain size, only bigger and bigger acquisitions stand a chance of making any real difference. Those are risky and, because they have to be financed by the issue of more shares, they are dependent on the rating the market is prepared to afford the company.

Conglomerates are out of fashion and food-dominated conglomerates even more so. Tomkins is putting a brave face on the bind it finds itself in, but until the shares come back into favour its hands are tied.

Privatisation on twisted tracks If adding confusion to an already messy state of affairs can be considered a policy, then Labour has a clear idea of what it wants for the railways. The thrust of the campaign is simple - to put the wind up the City, smothering the Government's hopes of

a lucrative sell-off in a blanket of investor anxiety. For the Conservatives to complain that Labour is leaving many questions unanswered about its own rail plans is a somewhat ineffective response, given that sowing as much uncertainty as possible is precisely what the anti-privatisers' campaign is about.

The City has barely begun to focus properly on a sell-off that will only get under way in the second half of this year. But Labour clearly believes its best chances of success lie in starting the rot early. If the sale of the passenger franchises for thetrain operating companies can be unsettled, even if only in part, then the entire privatisation stategy could be undermined.

Unless a substantial number of these passenger franchises are successfully sold, the City will worry about whether it is possible to privatise Railtrack. And if the privatisation of Railtrack is hindered, then not only will Labour have put the kibosh on the centrepiece of rail privatisation, but it will also have stolen the jackpot that the Conservatives are counting on to finance pre-election tax cuts.

Much of Labour's work has been done for it. Rail privatisation is deeply unpopular: the presentation has been a mess, and the confusion considerable. Labour is calculating it only has to heighten the uncertainty and it will notch up another Post Office humiliation. For the City, judging the likely outcome of this power play is essential to any assessment of whether to call Labour's bluff. Do investors really believe Labour could afford, financially and politically, to renationalise the rail industry? Ifthey do not, then Labour's scare-mongering might only serve to make the sell-off even more of a bargain. That was the effect of similar campaigns mounted against the water and electricity privatisations. The loser was the taxpayer; the winner was the City.

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