Two decades have passed since the late Lord Hanson, creator of one of the great business empires of the late 20th century, became Britain's first boardroom millionaire. These days, the average FTSE-100 chief executive, and many of their cohorts at the highest levels of industry and finance, wouldn't even consider climbing out of bed for that kind of reward.
At a time when average pay in Britain, across the public and private sectors, has been rising at 3.5 per cent a year, top bosses have seen increases of more than ten times that, at 37 per cent, putting them on average pay of just under £2.9m. That is before the huge value of share options, longer-term incentive plans and generous pension arrangements are considered. Within this group, there is a super-league of executives who have breached the £10m mark. In relation to these enormous awards, the £4.5m picked up by Sir Terry Leahy, the boy from the Liverpool estates who heads Tesco, looks relatively modest. That is, until one considers that Leahy's payout amounts to an astonishing 405 times that of the average Tesco shelf-stacker, who takes home £11,100 a year.
Once they reach the boardroom and start to mix with the super-rich, bosses become infected by a sense of entitlement. Tesco, for instance, makes a virtue of its unpretentious warehouse-style headquarters at Cheshunt. Yet behind this modesty lurks a hunger for ever greater rewards. Leahy recently angered some shareholders by negotiating a special bonus for himself in the event of the company's successful launch on America's West Coast.
The rerun of the long debate about boardroom salaries could not come at a more awkward time for the Prime Minister. As new Labour sought to topple the Tories in the 1990s, it lined up with the forces of better corporate governance by seeking to limit boardroom largesse. The party latched on to the rewards paid to former utility bosses such as Cedric Brown, then chief executive of British Gas, as a grotesque example of fat-cattery.
In 1994, his 75 per cent pay rise to £475,000 looked to be pure greed. But the hostility was opportunism by Labour in opposition. In government, it stood aside as pay in the boardroom and City rocketed into the stratosphere. It is against this unbecoming history that Gordon Brown is now struggling to control public sector pay.
There is no doubt that, when Labour assumed power, pay growth in the public sector had fallen behind that in commerce. In pursuit of its goals of world-class education and NHS reform, Labour changed all that. It added 700,000 people to the government payroll and has sought to incentivise front-line staff in schools and health care. Even aside from the notoriously generous contracts awarded to GPs and medical consultants, wage settlements in the public sector have outpaced those in the wealth-creating part of the economy.
Earlier this year, the Department of Trade and Industry (since renamed the Department for Business, Enterprise and Regulatory Reform) reached a settlement with its civil servants worth 4 per cent in exchange for changed work practices. This is more than double the norm of less than 2 per cent that Gordon Brown set before he left the Treasury.
Brown has little choice but to stand firm in the face of the strikes by prison officers and broadening discontent across the public sector. The new public spending settlement, to be unveiled next month, allows for only a 1.8 per cent rise in outlays this year and beyond. Every penny conceded will mean less money for investment in infrastructure and will make it harder for Labour to keep within the strict fiscal rules it has set, let alone contemplate pre-election tax cuts to match those proposed by the Tories. Moreover, after a period in which private sector workers have seen gold-standard-defined salary pensions destroyed by regulations, Labour's dividend tax and wobbly financial markets, public sector schemes remain as generous as ever.
It is no secret that the pay in Britain's boardrooms has been allowed to run out of control. But the hard reality is that it is corporate Britain and the City apparatchiks that have been driving the nation's above-trend growth and higher tax revenues. There already are indications that the present crisis in credit markets and the end of big takeover deals will result in instant retribution in the shape of suspended bonuses and sackings that will hit the tax base hard.
The financial sector may be dominated by overpaid, spoilt investment bankers, but it is their taxes that have been filling the government coffers. It is not a question of the government's hanging tough to somehow punish the public servants for failing to deliver reforms quickly enough. It thus has little choice but to confront public sector unions if it doesn't want to sacrifice Labour's hard-won reputation for shrewd steerage of the economy.
Alex Brummer is City editor of the Daily Mail
