End this culture of rewarding failures in the boardroom

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There is nothing like a downturn to make shareholders look to the value of the companies they own, and, more particularly, to the remuneration of those who have been managing, or mismanaging, their businesses. Abuses that might have been overlooked during a boom suddenly look a good deal more sour when profits are down, the dividend is cut, jobs are lost and the only people who seem to be unaffected by it all are the chaps (for they are still overwhelmingly middle-aged and male) on the board.

There is nothing like a downturn to make shareholders look to the value of the companies they own, and, more particularly, to the remuneration of those who have been managing, or mismanaging, their businesses. Abuses that might have been overlooked during a boom suddenly look a good deal more sour when profits are down, the dividend is cut, jobs are lost and the only people who seem to be unaffected by it all are the chaps (for they are still overwhelmingly middle-aged and male) on the board.

So it is perhaps not so surprising that shareholders in companies as diverse in size and business as the Pru, GlaxoSmithKline and Wyevale Garden Centres have been asking awkward questions about managerial rewards. Yesterday's discussions at the annual general meetings of Shell and Schroders are the latest examples of this encouraging trend. Mutuals such as Standard Life and even some building societies have also been the subject of scrutiny by the owners of those concerns, the members. The increasingly strict rules about disclosure of executive pay and perks, especially the colossal size of pension funds that now have to be topped up to maintain directors in the manner to which they have grown accustomed, have stung shareholders into action. About time.

The National Association of Pension Funds and the Association of British Insurers (in other words, most of the big institutional investors) seem, at last, to have begun to realise that they do actually own the concerns they are investing in – and that they have a supreme duty to ensure that those they entrust to manage these concerns place the interests of shareholders first. This means an end to the culture of rewarding failure. It also means an end to the threadbare excuses churned out by lacklustre directors in middling British companies about the need to match US levels of remuneration, when most of them would be laughed at on the other side of the Atlantic.

The Department of Trade and Industry promises legislation to make companies more accountable for the rewards given to top managers. Very welcome; but the surest way of derailing the gravy train is eternal vigilance by the owners of these companies.

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