View from City Road: Fair comparisons for a nice, safe Bank job

The Bank of England's pay increase problem first exploded in 1991 when its annual report revealed that the Bank Governor's pay had shot up by 17 per cent. Since the Bank had made a practice of lecturing the world on the virtues of pay restraint, this provoked a rash of public criticism.

The following year, the Remuneration Committee proposed an even bigger rise for the Governor, but he was once bitten and twice shy. He sought to avoid a row by waiving a large slice of the rise. Eddie George, the Governor elect, has exercised his prerogative to take the money. He has also shown his commitment to low inflation by freezing the total for his full term.

If the Bank were a quoted company, it would have no difficulty in justifying more than pounds 200,000 a year. Indeed, it might look rather modest in the light of Prudential's Mick Newmarch on pounds 769,000 or NatWest's Lord Alexander on pounds 346,850. After all, the Bank's Remuneration Committee is above reproach. Chaired by no less a figure than Sir Adrian Cadbury, whose report on corporate governance set out guidelines for boardroom pay, it includes a trade unionist, another industrialist and a City notable.

Sir Adrian takes a robust view on Bank pay. Commenting on the proposed 28 per cent increase, he said: 'The Bank's pay structures must take account of the fact that people move between the Bank and the private sector at a senior level. The Bank cannot allow the gap between what its top officials earn and what they could earn to become too wide.'

This view, though, assumes that the Bank is more like the banks that it regulates than the public sector institution it is. Bank officials are not hired and fired like many City people. They enjoy the comfortable life of an over-hierarchical but secure bureaucracy.

Nor does it seem likely that pay is the main motive in the defection of Rodney Galpin to Standard Chartered, of Sir David Walker to the Securities and Investments Board or of Sir Kit McMahon to Midland Bank. It is much more likely that they just wanted to run their own show.

When they do, they can command substantial pay increases to reflect their experience as central bankers. To some extent, therefore, senior Bank officials should think of their time in Threadneedle Street as increasing their long-run income. Their gains will come, but not quite yet. Increasingly, the Bank will have to put up with losing senior people, and accepting the staff turnover that this involves. There is a clear parallel with the New York Federal Reserve Bank, which has long seen some of its best and brightest march out the door to luscious Wall Street pay cheques.