Reining in the fat cats

2003

The way that company bosses continue to award themselves huge pay and benefits packages seemingly regardless of the way that their organisations perform has led to a growing mood of public disgust.

But now it seems that the tide may be turning against City fat cats. Institutional investors are joining small shareholders in opposing remuneration reports that they feel are unjustified. Shareholders have attacked executive pay levels at Aviva, Corus, Shell, Schroders, Reuters, Telewest, Vodafone and others. At the Royal & Sun Alliance AGM, executives pay awards were opposed by more than one third of voters and at BAE Systems, half of investors voted against the directors' pay package.

This week, even larger investor revolts appear to be brewing at pharmaceutical giant GlaxoSmithKline and chemicals group ICI. So angered are investors about the £22m "golden parachute" payment that GlaxoSmithKline chief executive Jean-Pierre Garnier would receive if he lost his job that the National Association of Pension Funds (NAPF) has advised its members to abstain on the company’s remuneration package. The Association of British Insurers (ABI) has also voiced its strong disapproval.

In their defence, senior executives point out that pay packages for American executives have been traditionally far higher than those for their European counterparts. Since major firms fish for talent in a global pool, UK terms and conditions must be at least as favourable, otherwise management talent will go elsewhere.

Others – even some fat cats themselves – disagree. Niall Fitzgerald, chairman of Unilever, who earns more than £2m-a-year, has described payoffs to unsuccessful directors as "a potential cancer in our society," while Welsh Secretary Peter Hain tagged them "literally obscene".

Do you think that levels of executive pay are justified? Should legislation be introduced to limit ‘rewards for failure’ or do you agree with the view that shareholder activism, not legislation, is the way forward?