An ethical approach to excessive boardroom pay
May 22 2003 By Peter Jackson, The Journal
I wonder if anyone other than Mr Garnier is upset that shareholders vetoed the GlaxoSmithKline chief executive's pay package - anyone that is, apart from any Mrs Garnier and any little Garniers.
Oh, and I suppose any other senior executives who could have used his package to justify stratospheric pay increases for themselves in terms of the "going rate" will be secretly miffed.
Not that we should be hypocritical about this. Let's face it, how many of us would not pursue such rewards if we thought we could get away with them?
In fact, compared with executive salaries on the other side of the Atlantic, our senior executives seem like models of restraint, and let's remember that GlaxoSmithKline is half American.
The top-earning executive of an S&P 500 company last year is reported to be one Mark Swartz of Tyco, who earned a cool US$136m.
According to one survey of the US's 100 largest companies last year - not the best for corporate America in terms of stock performance - average chief executive compensation dropped 23pc to a mere US$15.7m.
However, that's only because the pay of a few real high earners - and Mr Swartz shows just how high that can be - dropped significantly.
In fact the median compensation figure, the kind of money your average chief executive earned, rose 14pc to US$13.2m.
According to one analysis, the average chief executive of a major corporation made 42 times the average hourly worker's pay in 1980, by 1990 it was 85 times as much and in 2000 it had reached 531 times the pay of the average hourly worker. The situation in the US is often used to justify massive remuneration packages for executives over here. If we don't pay the market rate highly talented people will go elsewhere, goes the argument.
But we don't pay anything like the Americans and it still doesn't seem to me that we have a flood of disgruntled British bosses heading off to the States in search of higher rewards. Furthermore, the American public is getting increasingly irritated by these levels of remuneration, particularly since Enron.
The solution to the problem of boardroom excess can only really come from shareholders. The problem here is that what one might call the ultimate shareholders - you and I through our pension funds - don't really have a say in how companies are run.
I think the answer may lie in some sort of variant of the ethical investment funds, where the concept of ethical is broadened to include voting down ludicrous remuneration packages.
GlaxoSmithKline's shareholders have shown us it can be done.
