Instead, Greenbury's stress is on information and accountability to shareholders, and on finding ways to align directors' and shareholders' interests in improving performance. He also recommends a small, sensible change, which the Chancellor immediately made a U-turn to accept, that share options be taxed as income rather than as capital gains.
The central problem is that some directors get pay rises even when their firms do badly. British company directors' pay has steadily increased for about 15 years, in many cases in spite of poor corporate performance. In the case of utilities, the public has been particularly enraged to see directors picking up huge rewards soon after privatisation and when business conditions are still far removed from the competitive cut and thrust of most industries.
Greenbury's basic answer is to wager that the more information about directors' pay they get, the more shareholders will discipline boards if they dislike what they see. Transparency also helps the culture of business: if leaders cannot justify to rank and file staff why they are taking large increases while expecting their colleagues to make do with an inflation-linked rise or less, they should not be taking the increase.
At the same time, better measures of company performance should clarify the links between directors' pay packets and the company's worth. Transparency and better measurement must work together. In the recent past, many companies' annual reports have given more detail and remuneration consultants have made wider comparisons possible. But, far from disciplining pay, firms have bid up the going rate to attract talent and to set benchmarks. The obsession with share price has allowed this to go on. But better indicators of performance could start to slow the ratchet effect. There is a good case for using measures of "total shareholder value", perhaps taking into account projections for the coming business cycle. Indicators of innovativeness, responsiveness, customer satisfaction, might also be relevant.
But in dealing with the privatised utilities, Greenbury has not been tough enough. Labour has suggested that where regulators see excesses in both profits and directors' pay, they should have the power to order price reductions for customers. The Government should steal this idea.
Labour's other proposals, however, lack conviction and appear to be motivated by a general desire to find small, unthreatening things to legislate about. The Greenbury committee's caution about the role of legislation in this area is well-founded, as anyone who remembers the statutory pay policies of the Seventies will agree.
Comparing the debate about Greenbury this week with the debates of the Seventies shows us how far we have come. We will always discuss enviously what other people are paid. But at least the time has arrived when business leaders and politicians have started talking sense about it.Reuse content