Sunday, May 16, 1999 Published at 18:00 GMT 19:00 UK
Business: The Company File
UK to investigate 'fat cat' pay
Are boardroom salaries too high?
The UK government has commissioned the accountancy firm PricewaterhouseCoopers to investigate the relationship between executive pay and company performance.
The firm will be scrutinising company AGMs to see if shareholders are able to effectively challenge excessive pay packages.
In opposition, Labour was strongly critical of 'fat cat' salaries, especially for the bosses of the newly privatised utilities, and introduced a one-off 'windfall tax' on their profits.
But a government spokesman denied that there was any U-turn.
"We are not into the politics of envy. We have always said we want world class companies in the UK and to see them rewarding their chiefs accordingly," he said.
Trade Secretary Stephen Byers is currently reviewing company law, and says he endorses the recommendations of the Greenbury report for greater shareholder scrutiny of boardroom pay.
"We want to see companies choosing to seek shareholder endorsement of their remuneration policy, particularly when the policy has been radically changed or has attracted controversy," he said earlier in the year.
"The key issue, in my view, is not whether remuneration levels are too high or too low, but whether they are sufficiently linked to performance to be justified."
Fat cats abound
A number of corporate pay deals in the past year suggested that such a link is tenuous at best.
SmithKlineBeecham chief executive Jan Leschly received a pay award of £93m over 10 years despite having failed to complete a merger deal with rival drugs giant Glaxo Wellcome.
Bob Mendelsohn, boss of Royal and Sun Alliance, earned £2.37m last year, including a £225,000 bonus, despite a 52% drop in profits at the insurance company.
And Victor Rice, who arranged the sale of car components company LucasVarity to a US firm, received a leaving bonus of £17m.
Stephen Byers has made it clear that he is willing to consider legislation on executive pay, but only as a last resort.
"The Government will have to consider legislation to require an annual vote on the board's remuneration report, or other measures like annual re-election of directors, if best practice does not succeed in delivering a greater link between pay and performance," he said.
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