Cameron must attack the right target on boardroom pay
David Cameron is about to slay an imaginary dragon. He is perpetuating the myth that directors of one company set pay at another whose board members set the first director’s pay. The prime minister plans to ban a practice that does not happen but he thus risks devaluing his whole attack on unjustified pay.
Giving credence to this urban myth means Cameron could miss the real point he needs to tackle. It isn’t the same directors setting each other’s pay – it is directors from a similar background who look after their ilk.
There have been straight boardroom swaps in the past but not now. Until Royal Bank of Scotland was nationalised, its chairman, Tom McKillop sat on the BP board while the oil group’s chairman, Peter Sutherland, was an RBS director. And BP executive Andy Inglis and non-executive Paul Anderson were both made part-time directors of BAE Systems – where the chairman is former BP executive Dick Olver.
But Cameron would have us believe this ‘crony capitalism’, as he calls it, still goes on. “We’ve got to deal with the merry-go-round where there’s too many cases of remuneration committee members sitting on each other’s boards, patting each other’s backs and handing out each other’s pay rises. We need to get to grips with that,” he said, introducing his clampdown.
Actually there are no cases, not “too many”, but he is taking his misdirected lead from business secretary Vince Cable who in 2011 published a consultative document on top pay claiming: “There may be a risk of this where a non-executive is involved in setting the pay of someone who, in another company, may have a role in setting theirs.” Cable wrongly said this “cross pollination” is quite common.
But research I published recently in the Independent on Sunday shows how executives of one company do set the pay at other companies. There are pairs of directors sitting on two companies’ boards. For instance: at Bovis, the housebuilder, Colin Holmes chairs the remuneration committee with former banker Alistair Lyons as one of the other two members. But at Admiral Group, the Confused.com insurance group, Holmes sits on its remuneration committee setting the £180,000 pay of its chairman – Lyons.
And there are cases where one of the pair is a non-executive chairman whose pay is set by these committees. Sir John Pearce and David Tyler are both on the remuneration committee at the Burberry fashion group, but at the Experian credit agency – another FTSE 100 company - Tyler sits its committee deciding the £350,000 pay of the chairman, who is Pearce.
Long strings of executives setting pay for their peers can be detected running through British boardrooms. For example, the Admiral remuneration committee that sets Lyons’ pay is chaired by John Sussens, who also chairs the committee at Cookson, assessing the £160,000 pay of its chairman, Jeff Harris. But Harris sits on WH Smith’s pay committee determining the £1.42m package for chief executive Kate Swann – and she sits on the committee at Babcock International where chief executive Peter Rogers receives £1.33m. Rogers sits on the pay committee at housebuilder Galliford Try alongside Andrew Jenner whose full-time job is finance director at services group Serco – whose chairman is also Alistair Lyons, earning another £199,000.
At Experian, Tyler also sets the £3m pay of chief executive Don Robert, who in turn sits on the remuneration committee of catering group Compass deciding the £2.56m pay of chief executive Richard Cousins, who is himself on the committee of Reckitt Benckiser, the household products business that paid its head, Bart Brecht, £92m before he retired last April. Tyler was himself a Reckitt director until 2009.
Or here’s another string: Bob Stack, former Cadbury director, received £55,000 for paying IMI chief executive Martin Lamb £830,000 – then Lamb received £46,000 for paying Severn Trent chairman Andrew Duff £250,000; Duff meanwhile received £79,000 for paying Wolseley chief executive Ian Meakins £2.01m, but Meakins received £64,000 for paying Centrica chief executive Sam Laidlaw £2.05m. And Laidlaw received £85,000 for paying HSBC chief executive Stuart Gulliver £3.91m.
And another: former banker Martin Angle received £52,000 for paying Pennon chairman Ken Harvey £253,000, then Harvey received £83,000 for paying National Grid’s finance director Andrew Bonfield £711,000. But Bonfield received £68,000 for paying Kingfisher chief executive Ian Cheshire £1.97m and Cheshire received £65,000 for paying Whitbread finance director Christopher Rogers £1.39m who received £45,000 for paying HMV chief executive Simon Fox £525,000.
If you ask a well-paid executive to assess the remuneration of another executive, the first is hardly likely to mark down the latter’s pay. While the non-executives determine the pay of the chairman – the chairman effectively decides the pay of the non-executives. If the part-timers restrict their chairman’s rewards, he could thus limit theirs.
Directors don’t need to be feathering their own nests with some mutual pact as Cameron and Cable suggest: the politicians need to dig deeper to find what’s wrong with the system.
