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BBC Breakfast With Frost Interview:
John Edmunds and Sir Desmond Pitcher
May 11th, 2003
Please note "BBC Breakfast with Frost" must be credited if any part of this transcript is used
DAVID FROST: The issue of how much Britain's top executives should be paid is back in the headlines, there have been a series of annual general meetings in recent weeks when shareholders have said, no too much, when the salary package of those in charge was being discussed. Indeed the row is back on the front of the Telegraph business section this morning, is it right to pay a million pound annual salary and the same again in bonuses even if the company's share value is on the slide, I'll be discussing these matters after this from Virginia Eastman.
DAVID FROST: Thank you very much indeed Virginia, now here with us in the studio we have Sir Desmond Pitcher who back in 1996 was involved in the fat cat controversy of that time. And of course in addition right here we've got John Edmunds of the GMB shortly to end 17 triumphant years at the GMB. But let me start with you John, back in 1998 you said that, you described executive pay as "the politics of the pigs trough" do you still feel that today?
JOHN EDMUNDS: I do I mean when Desmond was criticised I think he was criticised for £300,000 a year, I mean these days that wouldn't even get into the top hundred of directors of small firms, we're talking about people now earning £3 million, £4 million and the biggest problem is that in the last year the directors and most of the big companies, the average increase has been 23 per cent, that's at a time when ordinary people are getting increases of three percent. But how you can run a company and ask for team work and general support when you as a director are getting 23 per cent and going up to £2 million or so and your workforce are getting 3 per cent and perhaps getting £15,000 or £16,000 a year. It destroys the nature of the company I think.
DAVID FROST: Desmond is this a damaging situation?
DESMOND PITCHER: I think it's a very damaging situation and it needs resolving because the consequences of it are awful. The performance of companies provides most of the funding for pensions and most of the funding of people's savings and recently, in recent years we've seen the effect on both pensions and savings and over and above that most of the recent senior appointments in Britain have been from overseas because the young British executive, some going overseas but many of them go into private company working by themselves and the their own share option. I think it's got to be resolved in everybody's interest, the people working in the company, the executives and the country at large.
DAVID FROST: But how, how would you deal with this, would you deal with it with legislation or what?
DESMOND PITCHER: Well I think you know the exaggerated cherry picking of certain individuals distorts the whole particular picture. I think the way to deal with this is media pressure, inform the media pressure on those companies which perhaps haven't thought through what they're doing. But the 22 per cent that John's just referred to, actually it involved people coming in to new positions, there's a very high turnover in executives, some say every three years they're replaced or they leave every two years and of course the people come in at high, higher levels. What I don't like is the bonus system, I never liked it back in those days when we had the debate because the bonus system is the long term system which led inevitably against the arguments I put forward, the people getting high bonuses.
DAVID FROST: Because you, your two bonuses, a short term and a long term bonus were, were a cause of contention back in, in the mid 90s weren't they?
DESMOND PITCHER: No, the share options were a cause of contention, the bonuses came later in the day and in fact the bonuses which I'd argued against at the time was when the shares fell the bonuses would be paid and clearly the shareholders and the beneficiaries of that, the pensioners and the savings people would be dissatisfied. Here the salaries going up, or not the salaries but the total earnings going up and the shares going, share option schemes tied the two together ...
JOHN EDMUNDS: They make you pay for failure, I mean ...
DAVID FROST: Yes I mean rewards for failure is a contentious area but probably there's more agreement on the fact that the idea of huge rewards for failure is illogical to put it mildly. But, but what about the whole, what about either to get say Luke the guy who runs M&S over from the continent or you, or the market demands high salaries because otherwise people will go elsewhere or go to America or whatever. Are you opposed to high salaries for success?
JOHN EDMUNDS: I think there has to be some self-restraint in all of this, I mean clearly if you're being very successful then there is a case for bonus payments but the sort of bonus payments we're talking about are sort of ripping apart the fabric of our society and that's what worries me. I think somewhere in all of this self-restraint has to play a part, I mean why do senior executives who are always lecturing everybody else on team work and loyalty require to be paid £2-£3 million a year to stay in a company and there's getting to be a bit of a milk run now, you've probably seen David, people go to a company, they earn a very high salary, they fail, they move to another company, get a very big termination payment, pick up another entry payment there, fail there and move on. And there seems to be no penalty on people's careers any more than there is on the payments if you fail.
DAVID FROST: What, what about, would you in fact be in favour of legislation on this issue or do you think legislation just can't really deal with things like performance?
JOHN EDMUNDS: Well what I'd like to see first of all is first of all a big measure of self-restraint, but the second thing I'd like to see is remuneration committees to be opened up in a major way. I think you need people from the general workforce of a company on the remuneration committee. So you have one or two people on the remuneration committee who say hey hold on a minute, I got three per cent for working for this company why should the director get 23 or 30 per cent. And I think if you open up remuneration committees and there's less done in the back rooms, in the sort of shady areas I think we'll see a bit more sense come in to all of this.
DAVID FROST: A quick response Desmond?
DESMOND PITCHER: Well I think you've got to pay an appropriate salary for people who perform. We have in Britain, the second most successful international company after my, after an American company and there was criticism over the chief executive's salary, I think that's foolish. The miniscule relationship to what he gets paid and the value he's brought to his employees, to the shareholders, to the pensioners and to the savings people is irrelevant, it only went on agreeable job, performance isn't there, it shouldn't be set that way.
DAVID FROST: Thank you, thank you both, and Desmond good luck with your autobiography. And John good luck with your autobiography whenever you write it?
JOHN EDMUNDS: Well I'm not going to write it, I might get more money by promising to people that I won't write it.
DAVID FROST: And that's the way to do it, that's the way to do it. Thank you both very much indeed.
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