Outlook: Row over Garnier's contract misses point on executive pay

I'm going to take an unpopular line on Jean-Pierre Garnier's remuneration package by arguing that shareholders should not vote against it at Monday's GlaxoSmithKline annual general meeting. This is not because I think it's defensible – the board seems to have lost all touch with the realities of British life in agreeing it – but because what's done is done and to vote it down, if only for the purpose of making a fuss, might prove destabilising for one of our largest and most successful companies.

The intention of the board in the event of an adverse vote seems to be to brass neck it out. That could change if shareholders also vote against the re-election of directors. Ten of the 12-strong board are up for re-election including Mr Garnier (widely known as just JP) and the chairman, Sir Christopher Hogg. But that doesn't seem at all likely.

Most shareholders just want to register their displeasure with JP's two-year contract and other entitlements, and although it doesn't seem at all likely that JP, or Sir Christopher, would make an adverse vote on the remuneration report a resigning issue, it might nonetheless be seen as a vote of no confidence in the board. Hundreds of column inches of bad publicity is guaranteed. The big pharmaceutical companies face profound challenges right now and the last thing GSK needs is a destabilising boardroom crisis on top of everything else.

Instead, Sir Christopher will ask his shareholders to hold fire and await publication of the report he commissioned some months back from Deloitte & Touche on the company's remuneration policies. The intention of this report is to address the core issue of the executive pay debate – how do British-based global companies such as GSK attract management to compare with the best that America can offer while at the same time falling into line with British standards of acceptability on pay?

Jan Leschley, one of JP's predecessors, attempted to answer the question by threatening to move the company's listing and domicile to the US. The possibility was considered by his board and only rejected when it was realised there would be a gap between the company's removal from the FTSE 100 and its inclusion in the S&P 500, an eventuality that might have had catastrophic consequences for the share price given that for a while the shares couldn't have been owned by any indexed fund.

JP is not a greedy man, in the same way as Mr Leschley perhaps was, but he does believe there is an important point of principle involved, as well as the need to keep pay competitive. The contract now so much in dispute – which could trigger the payment of up to £22m to JP if ever he came to be dismissed – was originally signed more than three years ago, and has only really become an issue now because of the general backdrop of heat and noise over Higgs, corporate governance and fat-cat pay.

As it happens this is as fierce in the US as it is here. Post the excesses of the bubble, there is also a strong backlash against high levels of executive pay, but it starts from a much higher base, and whatever the outcome, the differentials will remain extreme. Across all industries, top executive pay in America is typically four to five times higher than it is here. The extreme examples of it will be curtailed but in the round top pay will remain on an altogether different scale.

Nothing is going to convince the population at large that JP "deserves" his contractual entitlement. He's enormously privileged to hold the position he has, and you would have thought that the responsibilities of leadership alone would persuade him of the need to accept more reasonable levels of pay. But even if he did, what about the next level of management down? Uncompetitive pay in the end generally leads to uncompetitive companies.

I've always thought the headhunters much more culpable than the remuneration consultants for the excesses of executive remuneration. It is they who have engineered the constant ratcheting up in pay and perks by making the idea of corporate promiscuity and disloyalty an acceptable one. Top executives are only able to demand their "market" rate because there is such a ready market in corporate salvation. When a company hits the rocks, shareholders will agree to almost anything in the hope of achieving a turnaround. The very institutions that now complain so loudly about excess are as complicit in the process as anyone else.

There is undoubtedly a need for change. The wealth and pay differentials building up in society are reaching a level where they begin to endanger the system itself. The perception, real or illusory, is of a massive and undeserved transfer of wealth and a degree of misdirected compensation unprecedented in corporate history. At GSK, as with so many of Britain's other top companies, shareholders need to support their board, but equally the board has to find a way of restraining the ever growing tide of executive greed.

WestLB/Saunders

She's young, attractive, clever, rich and charming, and for all I know she's musical as well, but is she any good? That's the question being asked in the City of Robin Saunders, until this week widely thought of as the rising star of private finance. This weekend, she's licking her wounds after her employer, the German state-owned bank WestLB, was forced to increase its estimate of losses for last year because one of her deals went wrong.

Whether it was actually one of her deals is a matter of some dispute but what she doesn't contest is that it was she who introduced the Boxclever refinancing to WestLB. Again, it is still not entirely clear what did go wrong, suffice it to say that WestLB was sold a pup by Boxclever's two owners, Granada and Nomura.

What appears to have happened is that they managed to offload a large chunk of Boxclever debt on to WestLB, which could not be securitised in the normal way. One look around a Boxclever outlet – it rents TVs to those who cannot afford to buy them – would have told her why. The business must be dying on its feet. In any case I doubt her next meeting with Guy Hands of Nomura and Charles Allen of Granada will be cordial. Already there is talk of writs flying.

The City likes nothing better than to build someone up to knock them down and everyone is having a field day with the high-flying Ms Saunders. The once-glowing profiles have been replaced with awkward questions and a certain misogynistic delight in her misfortune.

WestLB's chief executive, Jürgen Sengera, had the good grace to acknowledge that the bank's project finance division, of which Ms Saunders is a leading light, had contributed a half of the bank's profits over the past four years, but in other respects he seemed determined to hang her out to dry. "You asked me about my support for Robin Saunders", he said yesterday. "There I think we should be fair to all and we should also wait for the result of the investigation and then we will make a statement." It was hardly a ringing endorsement.

Two points are worth making. The first is that Ms Saunders' public profile and persona is much bigger than the reality of her business. She claims to shun the limelight, but the truth is that the press has been used quite cynically by WestLB to build her brand and advertise her talents. WestLB tends to be cited as a possibly interested party in virtually every deal that's going, but actually it doesn't do very many of them. Ms Saunders has got some big fans – Philip Green and Bernie Ecclestone, to name but two – but again she's way down the league table of players in securitisation. Having so successfully ridden the updraft, she should not be surprised by the schadenfreude.

The other is that private finance may not be the one-way ticket to riches that everyone imagines. There have been any number of cases of it that have gone wrong over the past year. It looks like alchemy but actually it's just financial engineering, and as Ms Saunders has discovered to her cost with Boxclever, it is all too often built on shaky foundations.

jeremy.warner@independent.co.uk