Fat cats who earn their cream should not face public lashing

Christmas is coming and the cats are getting fat. I refer to the fat cats of the City, rather than those of industry.

American investment bank Goldman Sachs appears to be showing the way, following something of a turnaround in its fortunes. It was a quiet 1994 by Goldman standards, but this year has made up for all that as profits top the $1bn (650,000) mark and retained profits swell the capital base to some $5bn (3bn). The last time there was a bonanza at Goldman – or Goldmine as it has been dubbed – was in 1993, when junior partners took home $5m (3m) in bonuses and the three top partners in London were said to have staggered home with $23m (15m) each.

We won’t know the degree to which Goldman pundits – such as Gavyn Davies, one of the Chancellor’s “wise men” who got an interest rate cut spectacularly wrong in the press, or our own industry’s analyst Neil Blackley – are sharing in the spoils. But one hopes they are keeping the end up for those who analyse and comment for a living, rather than actually making anything.

There really are no politics of envy in these comments. It strikes me as honest and decent that those who make money should participate in its distribution. And, it has to be said, there are those who do not make it who have to take it on the chin. At Salomon Brothers, for example, a poor year has meant that employees will see the discretionary part of their pay cut by at least 20 per cent.

Not everyone, of course, appears to track renumeration so closely with performance. It emerges that the former deputy chairman of Barings, Andrew Tucky, is in line for a 500,000 bonus-enhanced package from the bank’s rescuers, ING. This forms part of some 20m in bonuses that will be distributed to senior executives, some of whom considered that this was a matter of priority before Barings could be sold to the Dutch for 1.

When the Singapore inspectors filed their report last October, the Barings management was accused of “institutional incompetence” and a “total failure of internal controls”. But then what does Singapore know about Western banking? While it is evidently in a position to judge Nick Leeson, where will we be if it starts judging his bosses?

We have spent much time judging bosses in the UK during this past year. In the advertising sector alone, we had WPP’s Martin Sorrell chastened for taking a hypothetical, performance-related, multimillion pound remuneration package to a vote by shareholders, while it was Maurice Saatchi’s pay packet that provided the pretext for his ousting and the collapse – or renaissance – of Saatchi & Saatchi as Cordiant.

But the real public and political ire this year has been reserved for the heads of privatised utilities. That is where our attention has been most keenly focused by parliamentarians on both sides of the House and their loyal media. I would simply like to ask whether, in the light of what merchant banks make out of industry and, indeed, out of other service industries such as marketing, whether that focus is just.

We have had a Parliamentary Select Committee inquiry and the Greenbury report on executive pay. Both have been used as political cudgels for exacting punishment on the fat cats of the privatisation programme.

British Gas chief executive Cedric Brown has taken the brunt of this campaign. But, since my day job involves British Gas, I will confine myself to saying that a survey conducted by The Sunday Times and published last weekend shows that, on a calculation of Market Value Added (MVA) – the difference between the total capital managers have to play with and the cash investors could take out, if share value was realised net of debt – British Gas has shown the sharpest improvement in performance since 1990.

I see no banks in the top 100 of the MVA list. But my point is broader than whether cats are fatter in investment banks than in privatised utilities. It is about whether we are focusing our attention on the correct sectors when it comes to the remuneration debate.

A report published on Monday by Incomes Data Services revealed that directors’ pay has risen on average by 11 per cent over the past 12 months, against a current inflation rate of 3.2 per cent. This was seen as flying in the face of Greenbury.

But that, again, misses the point. The market value exercise – well regarded in the States – demonstrates that the top ten most prosperous sectors are: pharmaceuticals, general retailers, integrated oil, telecommunications, media, food, leisure and hotels, alcoholic drinks, food retailers and diversified industries. These are sectors almost without exception that demand high levels of marketing expertise.

The worst sectors in market value terms are the likes of oil exploration, gas distribution, vehicle engineering and chemicals. In short, where marketing at best has a more restricted role.

All I would ask is that we recognise, during a coming year in which growing election pressure will again focus attention on the villains of executive remuneration, that prosperity and reward should exist. Marketers could have a role in identifying that prosperity. They might even make a bob or two themselves.