Communicating remuneration policy

ANGUS MAITLAND

On 20 November 1994 the business section of The Sunday Times published an exclusive lead entitled ‘British Gas Pioneers Huge Executive Pay Shake Up. The paper described the British Gas move as ‘the biggest shake up of executive pay in UK corporate history’ and noted that the new system would involve unprecedented levels of remuneration disclosure, scrapping of annual bonuses and automatic share option grants, the reduction in rolling contracts from three years to two, and a long-term share option scheme tied to growth in shareholder value. With what was shortly to prove a nice sense of irony, an industry commentator was quoted in the piece as saying: ‘this kind of sensitivity to shareholders is the way the market is going. Things are not going to stop with two-year rolling contracts’.

Linked to the piece was an editorial: ‘British Gas leads way to open management’. It described the company, then with a market capitalisation in excess of £13 billion with pre-tax profits of £1.3 billion, as ‘conservative and monopolistic’ and said that its directors had recognised that ‘such a stance was unsustainable’. And, on the pay system, it said that British Gas's initiative was the most radical attempt at that time to reconcile the interests of executives and shareholders.

That was Sunday. By Monday, British Gas was in crisis. Cartoons of rather plump cats with cigars and bowls of cream filled the front pages of the tabloids, and the broadsheets shrieked in indignation.