Terry Murden: Boardroom pay haunts shareholders and MPs

STEPHEN Hester and Sir Bill Gammell have found themselves in the line of fire in an increasingly bitter war of words over boardroom pay.

Those gunning for the RBS chief executive and the chairman of oil firm Cairn Energy have different reasons for taking aim, but their target is broadly the same.

For some weeks there has been speculation that Hester would receive a pay and bonus package of about £2.4 million. A report yesterday that a decision had been taken to set his bonus at £1m was quickly denied by his chairman Sir Philip Hampton, a clear indication by itself as to how sensitive the issue has become.

But there were two clues to suggest the report’s forecast will not be far off the mark. First, Hampton described it as “inaccurate and premature”, an odd choice of words suggesting it may be wrong for the moment but more a case of jumping the gun.

Also, Penny Hughes, who chairs the bank’s remuneration committee, is sounding out shareholders who are said to be in favour of rewarding Hester for shrinking the balance sheet. While the eventual award may come in lower than predicted, and will be in shares vesting in probably three years time, it is still likely to be paid. Hampton, therefore, doth protest too much.

Gammell, meanwhile, faces objections from shareholder groups over a £2.5m pay-out for completing the sale of a majority stake in Cairn’s Indian venture to Vedanta Resources, together with £1.4m for moving from chief executive to chairman. Gammell has done what he promised by delivering the deal, and his termination payment is contractual after the board asked him to take on the new role.

It seems the Association of British Insurers is unhappy that its members were not consulted beforehand. James Buckee, chairman of the remuneration committee, was meeting them yesterday and was no doubt offering a few apologies while arguing that shareholders shared some £2.3 billion from the sale of 40 per cent of Cairn India, so didn’t do too badly.

There is also a hint of nervousness here. The ABI, like other shareholders, is aware of the political pressure being applied in an atmosphere of outrage over excessive pay.

The two cases are now at the eye of the storm over what has been dubbed “moral capitalism”, or the way companies reward executives. The Prime Minister, David Cameron, and Labour leader Ed Miliband are trying to seize the initiative, with shareholders caught in the crossfire.

Vince Cable, the Business Secretary, will unveil plans to tame executive pay next week but the politicians have their work cut out achieving the changes they demand without prompting the departures that indignant executives occasionally threaten.

The only way directors’ pay has been controlled by politicians in the past is through taxation. Remember supertax?

However, it’s doubtful that Cameron or Miliband will be eager to push for that particular solution.

First signs of Scottish legal merger plans

ONLY last week we revealed that Scotland’s lawyers were expecting a significant merger as profits are squeezed by a shortage of work. Quite simply, there are too many lawyers chasing too little business.

McGrigors, the biggest in Scotland by turnover, is now in talks with Pinsent Masons about a closer relationship that would extend the Scottish firm’s access to a substantial international client base. Pinsent Masons, already represented north of the Border, will see it as a rare opportunity to strike a deal with the biggest on offer.

The talks are at an early stage and while there are seen to be synergies between them, the partners will need to be satisfied that they and their clients will benefit from such a tie-up.

Proposed mergers in the sector have floundered on a number of factors, not least a failure to agree who runs the merged entity. But the recent survey by accountancy firm PwC indicated that the direction is firmly in favour of deals being struck.

What is making the difference this time is falling revenue and profits and work transferring south as the number of corporate headquarters in Scotland shrinks. Some firms have been laying off staff. It all points to the need for scale to make them more competitive.