The brightest turn their backs on corporate life

Most people's reaction to the news that yet another executive has been sacked with a golden handshake is one of outrage: what an extraordinary world we live in when failure is rewarded far better than success.

The numbers can certainly be extraordinary, particularly in the United States. Last week John Walter was ousted as president of AT&T, the telecommunications giant, and will receive nearly $26m; earlier this month Gilbert Amelio left Apple Computers with $7m, which looks quite modest when compared with the $90m paid to Michael Ovitz when he left Walt Disney last December.

Here the numbers may be smaller, but still are far beyond the imagination of most ordinary working people. This week United Utilities got rid of Brian Staples, its chief executive, who will receive an estimated pounds 600,000 for two years of basic pay, plus perhaps other benefits. All this makes the pounds 10,000 a month being paid to Sir Jeremy Isaacs - not for failure, just for resigning early from the Royal Opera House - a pure bargain.

The response of many people to these pay-offs is that there should be some restriction on the contracts that lead to them. British institutional investors have sought to cut the length of such contracts, for it is early termination that leads to the big pay-out. In the US similar pressures for change are mounting.

But what should really be alarming about the trend towards large pay- offs is not so much their apparent unfairness, but rather what they say about the relative attractiveness of top jobs. The pay-offs are just a symptom of a much more destructive ailment: fewer and fewer really bright people want to take on top jobs.

Apple Computers is a prime example. As we reported yesterday, the company very much needs a new chief executive. It has gone to a head-hunting agency, but apparently the job is not attractive to any established figure in the computing industry. Now you could argue that Apple is a special case, for it has been making enormous losses. But the core business seems sound. It surely ought to be possible to get good people.

If it is difficult - and from my own conversations with business people, filling top jobs is now always difficult - this must be because the risk/reward ratio has shifted adversely. The risks are greater than ever before (with ever-changing products, more demanding customers, and stock-holders watching every quarter's earnings). The rewards do not seem particularly great when compared with safer, less stressful jobs that still pay considerable salaries. Result: payments for executives in large companies have been ratcheted up further and further, and no one who is any good will take on a tricky job unless there is an enormous golden parachute available if things go wrong and they have to bail out.

If that seems alarming enough, there is an even deeper layer of concern: if top jobs are, relatively speaking, less attractive, how do you get good young people into companies in the first place?

Three of four years ago I was talking with a personnel chief at one of the five largest companies in the world. He was seriously worried because his company felt that it could no longer attract the best people from universities. The firm had to make do with the second and third best, which would in another 20 or 30 years' time be a disaster for the firm. The best, he believed, went either into investment banking or management consultancy, both of which paid more and offered more fun.

Now it is not even clear that these two favoured professions can attract the best. Sure, they can pay very well, but that is not enough. As we have been reporting in this paper, many young people are rejecting the corporate life and its values. It is not just that they do not want to get home, night after night, at 10pm and be in at 7.30 the next morning. It is also a question of values: the best want a freedom that no large bureaucracy can easily offer.

For them, too, the relative attraction has shifted. The grind is tougher than it used to be; and there is now a host of other ways of earning a good living, maybe even a better one. For many that means starting their own business.

In many ways this is wonderful. One of the reasons for the sustained growth of employment in the US is the enormous numbers of new businesses being created. Big companies downsize; small ones hire. Here in the UK we have much higher levels of new business creation than on the Continent. More than half Europe's venture capital industry is here in Britain. Seismic changes are taking place in technology which make it much easier for small business to create high-quality goods and services, particularly in software, entertainment, and some branches of high technology.

The success of entrepreneurs is reflected in social attitudes. Start a small business, make a fortune and you are hailed as a hero. Grind your way up a large one, get a substantial salary plus some stock options and you are pilloried as a fat cat. No wonder many of the best of the young prefer to be on their own.

But if this is good for one part of the economy, it also carries the gravest dangers for others. If our large companies have to pay more to keep their top people that is certainly a worry. But if they cannot hire the best of the young that is an even greater worry as inevitably they will shrink, losing even more jobs in the process. If even consultants and investment banks, those darlings of the 1990s, are finding it harder to recruit and retain they too will soon start that long, slow, painful process of decline.

There are two responses to this. One is to say that this is economic Darwinism: that the decline of the present batch of large companies is natural and inevitable, and we should just be relieved that new businesses are sprouting to take their place.

The other is to say: wait a minute, surely it should be possible for large enterprises both to think of better ways to plan changes in top management, and even more important, to create an environment which is more attractive to the potential top managers of 20 years' time. Meanwhile, next time you read of a golden handshake do not be outraged (well, not for too long); be concerned.