Hidden force behind salary boom Nils Pratley Friday August 1, 2003 The Guardian
Pay consultants who advise on the remuneration of executives are increasingly accused of being the hidden force behind spiralling boardroom rewards. The charge being laid at their door is: Do you expect us to believe that there is any mileage in telling directors - who you are charging up to £500 per hour - that they are overpaid or are overpaying their colleagues? Graef Crystal, who for much of the 1970s and 1980s was America's leading pay consultant before writing an exposé of executive greed in a book called In Search of Excess, says nobody should be under any illusions. "If you don't want to spend too much time in confession, this is not an industry to go into," he says. "Almost never do they look at pay and performance. Otherwise they would sometimes have to go to the client and say 'we've looked at your per formance and you should reduce your pay'. And if you deliver that message you are no longer the consultant." He says he learned his lesson on his first assignment, when he advised a chief executive officer (CEO) that if he wanted an incentive package he would have to reduce his basic salary. "The CEO went apoplectic," he says. "He didn't have any idea that he might have to give up something in order to get something. It was as if ice formed on the windows and he turned to me and said: 'Who do you think pays your bills?'" Mr Crystal worked for Towers Perrin, the firm that pioneered pay consultancy. New rules last year forced public companies in Britain to disclose their pay consultants and Towers Perrin's leadership here is very apparent. It advises 24 of the 107 companies surveyed and is named by another 22 as one of a number of consultants. Mark Reid, its head of executive compensation in the UK, says that Mr Crystal's experiences pre-date the revolution in corporate governance. "The type of advice we are giving to companies is helping them to understand the market in which they operate," he says. "There is a competitive market for executives at all levels and we help companies by giving them data and factual information. So what is Mr Reid's explanation of The Guardian's finding that directors of FTSE 100 companies last year on average took home 23% more at a time when share prices fell? He thinks remuneration committees do a good job of linking pay and performance. But he says that if share prices fail to improve over the next three or four years "the figure in those [performance-related] columns will increasingly be zero."
