Hunting 'Fat Cats' Becomes Latest British Sport

Hunting so-called fat cats "" the biggest company boardroom earners "" may have become a British media obsession, but the pay packets of the country's top players are under even closer scrutiny from institutional shareholders.

The latest row, between electronics giant General Electric Co and some of its major shareholders who objected to a 10 million ($15.61 million) five-year package for new managing director George Simpson, resulted in GEC setting tougher performance targets.

But questions remain over how much the individuals charged with running some of Britain's most, and in some cases least, successful companies deserve to be paid and have led to a reappraisal of the fundamentals of corporate governance.

 

Both last year's Greenbury committee on executive pay and the earlier Cadbury report on corporate governance laid down guidelines on how companies should behave.

But not all the rules are compulsory and some firms have opted not to toe the line.

This has led to a more active approach by leading institutional shareholders like Norwich Union and has seen greater involvement from bodies such as the Association of British Insurers and the National Association of Pension funds.

Institutional shareholders are paying a lot more attention to these issues, not perhaps out of choice but because of circumstances. We do think remuneration issues are important but perhaps get more publicity than they should, Anita Skipper, corporate governance manager at Norwich Union told Reuters.

Skipper said the group, which has been looking at corporate governance issues for more than a decade, does not generally give a view on the general package an executive receives, but tries to ensure a company's performance justifies the benefit.

This means close scrutiny of every aspect of the company's performance, including factors such as its return on capital, cashflow, the way it is managed and its prospects.

It's good to see the big investing institutions flexing their muscles and taking an active interest in this way, one industry insider told Reuters.

Last week Tim Melville-Ross, director general of the Institute of Directors, rallied behind Simpson, arguing that very few people were capable of doing the job.

Melville-Ross also sat on the Greenbury panel which urged the remuneration committees "" which decide directors' salaries "" to take into account the wider scene, including pay and employment conditions elsewhere in the company and industry.

A row over a new executive bonus scheme at British power and water giant United Utilities in July fuelled public outrage at the million-pound packages that executive directors of monopoly utilities have managed to amass since privatisation.

Last year, chairman of Marks and Spencer Sir Richard Greenbury was given the job of attempting to impose curbs following public outrage over the pay of Cedric Brown, formerly the chief executive of British Gas.

That was a watershed. That was what raised public awareness of the issue (of directors' pay), Norwich Union's Skipper said.

The Greenbury committee said a number of privatised water and energy companies have developed, perhaps unintentionally, remuneration packages which are richer than required to recruit, retain and motivate quality managers.

Skipper maintains that revealing directors' pay is a requirement of good corporate governance. It should be there for shareholder scrutiny, she said.

But her view is not appreciated by all directors.

One director of a quoted financial institution, recently said he was firmly against having his salary and pension details published not least because of the potential personal repurcussions.

His mother-in-law happens to be a shareholder and receives the company's annual report and accounts and he confided that she has since hinted she will re-write her will in favour of her other children.