British CEO Pay Raises Stir Public Resentment
LONDON — THE captains of former government-owned companies, now privatized, are losing public support by arranging huge pay raises for themselves.
The increases, warns a senior official of Britain's ruling Conservative Party, are creating deep resentment. By offending the public in this way, company boards are jeopardizing government attempts to move more state-owned utilities into the private sector, says John Maples, the party's deputy chairman.
Mr. Maples's remarks appear in a Conservative Party strategy document leaked to the news media last month. In the document, he calls for the government to curb high executive salaries in privatized industries to help restore flagging voter confidence in Prime Minister John Major's government. By coincidence, the high-salaries issue has been highlighted by political argument surrounding a pay raise of 75 percent awarded to Cedric Brown, chief executive of British Gas, which was privatized in the late 1980s.
Mr. Brown got his raise the same week BG employees were told to hold their own pay increases below 3 percent, and gas consumers learned that household fuel bills would be going up in 1995.
BG's remuneration committee boosted Brown's basic annual salary to 475,000 ($741,000) in defiance of warnings a week earlier by Mr. Major, who said ``large and unjustified'' salary increases were socially divisive in a period of government-promoted pay restraint.
The company defended Brown's hike, arguing that his new salary was in line with ``international norms.''
Major held that cases such as Brown's will damage the prospects of selling off Railtrack, the infrastructure component of British Rail, estimated to be worth 6.5 billion. Three days after Brown's increase was announced, Major set machinery in motion for Railtrack's sell-off over the next two years. Shares in Railtrack will be offered to the British public on a market soured by seemingly unjustifiable pay raises for top executives.
But the prime minister has little option other than to press ahead with the sale of Railtrack. A government policy paper leaked to the media suggested that proceeds from the sell-off could be used to reduce income tax in the run-up to the next general election.
Executive pay in utilities previously government-owned has become a hot political issue for the Major government, which is pledged to hold inflation below 3 percent. To achieve this, the government needs to ensure that workers' pay raises stay below the inflation rate.
But Major finds himself fighting utility boards keen to exercise their new-found independence and determined to set their own salary levels.
Meanwhile, there appears also to be growing public resistance to selling off important national assets.
In November, Major had to abandon plans to privatize the British Post Office after a group of rebel Conservative backbenchers in the House of Commons refused to support the measure. Some argued that boards of newly privatized companies appeared more interested in personal gain than in improving service to the public; one said the attempt to sell off the Post Office was ``a privatization too far.''
BRITAIN'S highest salary in a privatized utility is paid to Sir Iain Vallance, chairman of British Telecom, who gets 663,000 a year. Last year's biggest raise was awarded to Sir Desmond Pitcher, chairman of North West Water, who saw his salary leap 42 percent to 338,000.
Jack Cunningham, the industry spokesman for the opposition Labour party, says if Labour won office, it would take early steps to curb huge pay hikes. ``The people of Britain are fed up with being ripped off and overcharged by people in privatized monopoly industries giving themselves huge salary increases,'' he says.
Despite Major's misgivings about fat paychecks for BG executives, Trade Secretary Michael Heseltine appears to side with the company. He says the ``international framework,'' in which top salaries are set, required Britain ``to pay the rate for the job.''