Want something for nothing? Try a job at GEC

I once worked at The Times but lamentably I was too young to coincide with the editorship of William (now Lord) Rees-Mogg. I say lamentably not because I am an admirer of the old sage and pen pusher. Rather the reverse. As far as I'm concerned his weekly columns in The Times are pompous waffle. If that was the tone of The Times when he ran the ship, then I'm glad I never worked for him. None the less, this is plainly a man of generous wallet, at least in so far as other people's money is concerned. I cannot help but think that had I been around at the time, some of it might have rubbed off on me.

I'm referring, of course, to the fact that Lord Rees-Mogg was until yesterday chairman of GEC's remuneration committee, a position he relinquished at the annual general meeting. It is he who set the pay of senior executives at GEC. Judging by his latest two stabs at the job, his approach is one of gay abandon. If this is Lord Rees-Mogg's idea of cost control, then shareholders in GEC should thank their lucky stars his activities were confined to the boardroom, where his scope for damage was comparatively limited.

Even so, he's managed to make a fair old ham of it. GEC has been forced on to the defensive over the matter of executive pay not once, but twice in the last year. This was not because of the usual public outcry about excessive executive pay, you understand. Who in the real world gives a stuff what the workers think? This was much worse. It was criticism from the City, where the need for high pay and even higher incentives for top managers is fully understood. If you need a big bonus to get out of bed in the morning yourself, it is generally easier to see why others should want one too.

The first time was over the pounds 10m package offered to the new managing director, George (now Lord) Simpson. The second, more serious episode concerns a new share options scheme to incentivise top managers which in certain circumstances could increase salaries by eight times. What was proposed is not dissimilar to the schemes put in place by BP for top managers some years ago.

That particular manoeuvre has enriched a large swathe of senior BP employees beyond the dreams of avarice. Whether these rewards were deserved is more of a moral than a commercial issue. But it is certainly questionable that BP's spectacular performance in recent years is in any way linked with the incentivised pay structure of its managers. BP was recovering anyway, and arguably might have done just as well on more pedestrian levels of executive pay.

However, at least the BP scheme imposed relatively demanding targets. That does not seem to be the case with GEC. Under one of the schemes, a small group of top executives will be able to exercise so-called super options if GEC does no more than achieve median performance on total shareholder return against the FTSE 100.

There are no rules governing executive pay. Greenbury never suggested any, nor did its successor body, the Hampel committee on corporate governance and executive pay. But there are guidelines published by various investor organisations. The Association of British Insurers requires exceptional performance - typically top quartile - to justify super options. So what on earth are Lord Rees-Mogg and others doing going against the wishes of their own major shareholders in this way?

Lord Rees-Mogg was completely silent on the matter at yesterday's agm but Lord Prior, chairman of GEC, managed the following little gem of an explanation: "We must not allow legitimate public fears about human nature's inability to control its own excesses to bind us into ways that inhibit those responsible for large enterprises doing what they believe best suits the needs, objectives and interests of all concerned..." Well I never. I don't think I would let public condemnation get in the way of a big fat pay rise either. The difference here is that it is not public condemnation but that of a large chunk of the company's own shareholders.

Let there be no mistake about this: yesterday's vote at the annual general meeting was not, as Lord Prior might have us believe, a ringing endorsement of what was proposed. In a company of GEC's size, for the vote to go 40 per cent against the board on an issue like this is pretty much unprecedented. Investors tried to persuade GEC to change the schemes and indeed there was some watering down of the proposals ahead of publication. But on the substantive issue of performance targets, directors refused to budge.

There are a number of possible interpretations for this dogged intransigence. Perhaps the most worrying for investors is that for a company like GEC to achieve median performance over the next five years might in itself be a very demanding target. It could be that the private and confidential, for internal consumption only, version of Lord Simpson's strategic review has discovered a company in a state of such serious structural decline that even achieving the median requires a mountain to be climbed. In an index increasingly dominated by banking, pharmaceutical and service companies, it may indeed be difficult for an industrial complex like GEC to outperform. If that's the case, then shareholders would be well advised to sell down the stock as rapidly as possible.

It is hard to believe this can actually be true, however. GEC has underperformed the rest of the market for so long now that the reverse is much more likely. There should be a bounce in the stock, whatever. Winning the jackpot at GEC may well require neither undue effort nor talent.

In his latest column for The Times, Lord Rees-Mogg reflected on one of his all-too- familiar themes - how different it was in his day. He's of the war-time generation you see, so he can sympathise with the Queen and her reluctance to participate in the great outpouring of public grief over Diana. In those days you were taught out of necessity not to show your emotions, he observes. How strange, then, that he should have forgotten what real leadership is about - those great war-time qualities of duty, purpose, loyalty and self sacrifice. This is as true today as it ever was, in industry as well as any other walk of life. It may not be Lord Rees-Mogg's fault that the world has changed but he ought to reflect long and hard on his position at the vanguard of Britain's new, something-for- nothing values and culture.