Fat cat directors' pay back in the headlines

At a time when most UK workers are being urged to exercise pay restraint, controversy over continuing increases in the so-called "fat cat" salaries of company directors - particularly in the privatised utilities - was renewed in August 1998.

At the end of July 1998, the Government backed away from the idea of controlling the salaries of companies directors in the utilities. After leaked rumours of plans to prevent large pay rises for directors by linking them to customers' bills, Margaret Beckett of the Department of Trade and Industry (DTI) commented that "it is not the government's job to set the pay of utility company executives."

Instead, the Government plans to "shame" the privatised utilities into curbing excessive pay rises in the boardroom - known in the media as "fat cat" pay - by requiring them to disclose links between directors' pay and service standards. Amid reports that the Treasury wants to "name and shame" firms that award large pay increases unmatched by productivity gains, the DTI is also considering plans to force companies' remuneration committees to vote on directors' pay and bonuses.

In August, the subject was again raised when the chief secretary to the Treasury, Stephen Byers, reiterated the Chancellor of the Exchequer's warnings that pay restraint had to be exercised by directors as well as employees further down the ladder. Treasury analysis of a Utility Week survey (published on 31 July 1998 and examining total board remuneration in the utilities over the last year) highlighted that the total remuneration of major privatised utility company boards has increased by around 18% over the year. The survey, which shows total utility boardroom remuneration growth of 15%, indicates a rise of around 18% for major privatised utility companies. The figures also show some individual chief executives receiving pay increases of over 40%.

Stephen Byers said that: "'People must recognise that today's excessive pay increase could be tomorrow's interest rate rise or mortgage increase. That is why the Government warned, in response to the consultation on the utility Green Paper, that it would consider taking action to increase shareholder control over directors' pay unless there is a more positive approach by all companies. For the price-regulated utilities, we believe that regulators should write an open letter to the remuneration committee setting out how well service standards have been achieved."

According to the Trades Union Congress (TUC), company remuneration committees are groups of non-executive directors which act as what general secretary John Monks has branded "the last closed shop". The Institute of Directors (IOD) and the Confederation of British Industry (CBI), on the other hand, want companies to be free to set the pay of their executives.

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