THE GUARDIAN

LEADER

Excess will not stop until government acts

Leader
Thursday July 31, 2003
The Guardian

A new train speed record was set yesterday. Not by Eurostar's 208mph - a far cry from the French record of 320mph - but by the gravy train run so successfully for so many years by UK company directors. Our survey today shows that, despite mounting public criticism of their run of excessive increases, they awarded themselves a fresh rise of 23% last year, during a period when average earnings increased by only 3.2% and when shares had slumped 50% since their peak three years earlier. The 2002 rise of 23% followed 17% in 2001 and 28% in 2000, a cumulative increase of over 80%. Very few of these rises were justified by performance and a worrying number were disincentives, rewards for failure. When you start your job knowing you could get over £1m if you fail, there is a positive disincentive to succeed.

What is really disturbing is the mindset of board members who see no connection at all between paying themselves over 20% a year (from an already inflated base) while keeping the earnings of the people under them who do so much of the work down to 3.2%. Do they really think that they single-handedly earn all of this rather than the divisions below them? Some of the increases are so huge that if directors gave them up they could make a material difference to really low pay at the bottom. They seem quite impervious to criticism. Indeed it seems to act as a aphrodisiac on them.

What can be done? They have been given a chance to put their own house in order and have totally failed to do it. It would be nice to think that the recent shareholders' revolt will have an effect, but on recent evidence it might stir them to award themselves even more before legislation is changed. There is now a strong case to do several things. First, give directors freedom to award themselves whatever they like - as long as the same percentage is applied to all staff (directors will gain because their salaries are much higher to start with). Second, companies should be obliged to put in their annual reports the ratio of highest to lowest paid with an explanation. Third, the government should levy a special tax on earnings over £100,000 or £150,000 to claw back some of the excesses - with the proceeds hypothecated for projects like schools in deprived areas. If Britain's boardrooms cannot lead from the front - except in the race to the nearest trough - then leadership will have to be thrust upon them.

Guardian Unlimited © Guardian Newspapers Limited 2003