Outlook: Boardroom pay

BEING ESSENTIALLY a Glastonian Liberal at heart, Tony Blair has always believed he ought to be able to rely on businessmen to lead by moral example and exercise restraint in the amount they pay themselves. Unfortunately it doesn't work that way in the modern world, if it ever did. Since Labour came to power, the pay differential between those at the top of the pile and those at the bottom has continued to widen.

The boardrooms of Britain's largest companies increasingly feel it necessary to pay themselves according to global, generally American, benchmarks, and there has been a continued news flow of multi-million pound remuneration packages for senior executives. Barclays is having to pay Mike O'Neill an American style package of salary, options, shadow options and bonuses to persuade him take the chief executive's job; he refused to come for any less.

So if executives cannot be relied upon to exercise restraint, what can the Government do about it? Like John Major, it could refuse offending businessmen their gong, but that doesn't seem to do the trick either. Nor can Labour, having fully converted to the cause of free market economics, realistically impose restraint centrally through Act of Parliament. Alternatively it could tax the rich more highly, but only the Lib Dems believe in doing that.

Instead, Stephen Byers, the Trade and Industry Secretary, is reported to be falling back on that old chestnut - obliging shareholders to do their duty. Such an approach is not entirely without merit. Rarely do shareholders get an opportunity to vote directly on director's pay, and even when they do, the structure of share ownership in Britain, with control focused in the hands of a small number of highly paid fund managers, means their stance is often an apathetic one.

This could be remedied in two ways. Companies might be obliged through the listing requirements to put directors' remuneration to the vote on an annual basis, in the same way as they do with auditors' fees. Secondly, pension fund trustees might be obliged to exercise that vote - with abstention no longer an option. There is a general objection to be made to any form of legally imposed coercion, but even so, neither of these measures could be regarded as particularly contentious. But whether they would have what Mr Byers seems to regard as the required effect, is another thing. Nor is it clear that to put moral pressure on shareholders to ratchet down the salaries of their executive officers is in their own best interests. We can all point to examples of excess in the boardroom, but if the effect is to make British boardroom pay uncompetitive when set against the alternatives, then that would plainly be a bad thing.