Gleneagles chairman deserves credit for taking £78k pay hit

STORIES of rocketing boardroom bonuses in the teeth of recession have become commonplace in recent months. So it is refreshing to report an example of a company chairman who has taken a sharp drop in performance full on the chin. Peter Lederer, the chairman and highest-paid director of Gleneagles Hotels, part of the Diageo Group, has taken a significant drop in pay from £287,000 to £209,000. In one of its toughest years ever, Gleneagles made an operating loss of £554,000 in the year to 30 June a

A cut in pay is normally no cause for congratulation, but context here is relevant. Too many company chiefs have continued to enjoy substantial pay rises even as their businesses have suffered and profits have faltered. The motivating cry "We're all in this together" falls flat when company leaders hide behind complex long-term incentive bonus schemes to enjoy ever higher remuneration, while staff are asked to agree pay freezes, restrict working hours, or even take pay cuts to keep their jobs.

Mr Lederer has set a correct if discomforting example that when business turns down so, too, should boardroom bonuses to reflect the reality of conditions.

Neither recessions nor soon-forgotten bad newspaper headlines have had any significant impact on the relentless rise in executive pay. Politicians have fulminated and small shareholders have despaired. Corporate governance committees have wrung their hands. Yet the caravan of a dysfunctional capitalism rolls on. Concern over the impervious rise in pay rewards has spread even to business lobbies. Last month, Richard Lambert, director-general of the CBI, said increasing levels of boardroom remuneration risked damaging public support for wealth creation. "It is difficult to persuade the public," he declared, "that profits are no more than the necessary lifeblood of a successful business if they see a small cohort at the top reaping such large rewards… If leaders of big companies seem to occupy a different galaxy from the rest of the community they risk being treated as aliens."

He quoted figures showing that the chief executives of the UK's 100 largest companies earned 81 times the average pay for full-time workers in 2009, compared with 47 times in 2000 – itself a year that followed a decade of explosive pay rises for the heads of newly privatised utilities.

Only yesterday, BP faced the wrath of investors over pay plans for senior executives, with nearly 16 per cent of shareholder votes withheld or cast against its remuneration report. Concerns have been raised over pay policies which saw chief executive Tony Hayward land a 41 per cent hike in his total pay package last year despite the group seeing a 45 per cent slump in profits.

Mr Lederer has set a good corporate citizen example. We hope trade at Gleneagles will recover, but hope, too, that other business leaders will share some of the pain when business goes badly.