Have your apple and eat it

Wed, 26 Sep 2007 08:28:34 GMT

Cityblogger notes with interest Gordon Brown’s views on executive pay. The PM hinted on Radio 4 this week that Northern Rock’s chief executive Adam Applegarth’s pay of £1.3m last year, which included a generous bonus of £600,000, might not be what he deserves. And Mr Applegarth could still walk off with a tasty year’s salary in compensation if he is kicked out of the Rock following the recent fiasco which saw a run on branches by customers terrified they might lose their savings, which were then thankfully guaranteed by the government. Our Gordon helpfully suggests that the ailing bank’s board should “look at these issues”.

It might not come as a surprise that parts of the City have come over all biblical in their fury over Gordon’s comments. “First cast the beam out of your own eye,” is the phrase that has been bandied about by some. “I personally feel Gordon should get his own house in order first,” fumed one fund manager Cityblogger spoke to. “Are we going to see similar cuts in salary following government incompetence? Nobody there ever suffers. And Gordon should have been bigger than that. He should have had the courage to say that executive pay is a matter for Northern Rock‘s board. ”

That isn’t to say that the City welcomes all “self benevolence” among executives with open arms. Executive pay is a perennial City bugbear. Those in favour of fat salaries and bonuses - which alone can often work out to be more than an executive’s yearly pay - say companies have to pay them to attract the best candidates from around the world and compete on an international stage. They’re considered to be a necessary incentive because of how hard executives have to work, how risky and short-term their jobs can prove to be and - especially with large international companies like BP and GlaxoSmithKline - how difficult it is to recruit players with the corporate management and political expertise required. Some commentators have even compared top company execs to top footballers.

But in recent months Cable & Wireless and Sainsbury’s management have had to justify their executive remuneration packages to unhappy shareholders. And what’s more, some investors complain that the public too often point the finger at the high profile companies when it’s sometimes some of the smaller companies whose founders treat them like their “own personal fiefdoms”. “I’m often surprised by the brazenness of some small company chief execs in what they pay themselves,” one analyst admitted to Cityblogger. “In very big companies you have all kinds of checks and balances but in some small companies executives regard the firm as their personal feeding bowl,” complains another.

One commentator is unhappy that Libertas Capital, a company with a market capitalisation of just £12m, according to its annual report for 2006 paid its two top directors £701,000 each last year - including £550,000 each in bonuses, but there are others examples out there too. Richard Palmer, the former chief executive of biotech company Alizyme, walked away in 2006 with a cool £900,000, including a £491,000 payment for ‘loss of office’, despite failing to deliver the major licensing deal the City has been waiting for.

The inside word from the City: Executive remuneration

Have your apple and eat it