Outlook: Conversion and executive pay

THE REAL reason for the building society conversions of the last year has emerged shamefacedly from the closet even faster than this column could have predicted. It never had anything to do with access to capital, the argument peddled by building society chiefs at the time. As it turns out, the building societies already have more capital than they know profitably what to do with. Unable to spend it to advantage, they are being forced to give it away by the bucket load.

Nor did it have anything to do with the more efficient, accountable and profit-orientated culture shareholder status is meant to bring about. Despite these supposed advantages, the converts are being persistently outclassed by the remaining mutuals

with more competitive savings and mortgage rates. The mutuals are able to do this for the simple reason that they don't pay a dividend, and are winning market share from the converts with growing success.

No, the real reason is our old friend executive pay. Halifax's accounts last week revealed that Mike Blackburn, chief executive, doubled his annual pay to pounds 824,000 in the leap from mutual to publicly listed status. That sum included a pounds 300,000 "bonus" for conversion. Plucky little Northern Rock is following in the slip stream. The chief executive, Leo Finn, sees his salary rocket from pounds 260,000 to pounds 430,000. The justification given by Northern's remuneration committee is"to ensure that directors basic salaries were paid at around the mid point between the median and upper quartiles within an appropriate comparator group of financial institutions".

No wonder so many of building society chiefs opted for conversion. Quite an incentive, that.