View from City Road: Taking on the boardroom pay-offs

Dear Mr Newmarch,

Suppose you found yourself the victim of a boardroom coup on arriving at the Prudential's headquarters this morning.

Doubtless the prospect of picking up pounds 2m or pounds 3m in 'compensation' for losing your job as the chief executive of the UK's largest investor would considerably ease the pain and humiliation surrounding your dismissal. You would not be human otherwise. Certainly you would hardly be likely to object.

It would be easy enough to justify such a pay-off, after all. You have made a considerable contribution to the company. There would be your lost earnings - pounds 834,068 last year - to consider. Many more vital and important issues face British industry than executive pay and compensation, but as you must be only too aware, it has become the talking point of the year. The mounting heap of unjustified pay-offs, contracts, share option schemes, salary rises, consultancy arrangements and ex gratia presents to company directors has become nothing short of a national scandal, a form of legalised theft that needs urgent attention. No one seems prepared to challenge the present state of affairs. The pounds 310,000 awarded to Richard North, Burton's departing finance director, who decided to leave under his own steam for a different job, the pounds 1.2m in pay, options and other benefits dished out to Richard Young, managing director of Midlands Electricty, and the pounds 1m golden handcuffs worn by John Mackenzie Green, group managing director of the insurance broker CE Heath, have caused universal outrage but no action.

There is widespread acknowledgement that all of this is giving capitalism and the City a bad name. There is also the likelihood that greed at the top of a company produces festering resentment among lesser employees, which will eventually take its toll on performance. Few societies can survive where there is one law for the rich and another for the masses.

If directors cannot be expected to act as disinterested guardians of the body corporate, who can? The only candidate is you. Large institutional shareholders are in a position to create a fuss. And as the UK's largest investor, owning 3.5 per cent of the stock market, and with a finger in every pie, you are ideally placed to administer stick as well as carrot.

Why not ask some of those clever corporate lawyers you employ to look into the legality of some of these arrangements? Even if there is nothing you can do the mere prospect should have a salutary effect.