Rising profits lift fat cats off the hook

THE deluge has started. And the eye-wateringly large pay packages now emerging at the top of major companies have sparked a torrent of criticism from consumers and unions. But most were entirely predictable.

And there is a good chance that many of the egregious pay packets hitting the headlines will escape serious challenge during this year's annual meeting season.

So why would £5m for Matt Barrett at Barclays, £3.5m for Centrica's Roy Gardner, £3.4m for Fred Goodwin at Royal Bank of Scotland or Jean Pierre Garnier's £6m at Glaxo suddenly be worth barely a raised eyebrow among institutions that created a furore over pay this time last year?

Clearly there are risks in paying bosses such stupendous amounts. If they attract consumer hostility, as they have done in the banking sector, customers might take their business elsewhere. Big salary rises at the top that are not reflected elsewhere in a business can also be resented and act as a disincentive to all but the well-paid big cheese.

But many of the huge salary packages are the result of bonus schemes put in place several years ago and triggered by improved profits and share price performance.

More to the point, they were agreed by a majority of shareholders at the time. Indeed, many investors might be happy to nod through pay rises prompted by higher profits and share prices after such a prolonged bear market. They will certainly argue that they have never been unhappy with gargantuan rewards for good performance, only with huge payouts for failure.

Yet there are risks in accepting such large awards, particularly if they are not based on exacting performance criteria. For example, part of Barrett's £1.9m cash was said to be a reward for delivering his successor, John Varley, the bank's finance director.

Quite how turning to the chap in the neighbouring seat in the boardroom to offer him a promotion warrants a cash handout is hard to fathom. And there have been some quite spectacular pension top-ups - David Prosser at Legal & General who turned 60 on Friday was given a one-off £1.6m - that simply should not go unchallenged.

But when the likes of Josef Ackerman, chief executive of Deutsche Bank, to which most of our banks show a clean pair of heels in terms of profits, are paid £7.5m, British shareholders are possibly counting themselves lucky.

THE Masters of the Universe started this year in bullish mood. Having spent the past three years watching their corporate clients shelve virtually all stock market plans, City bankers predicted this one would be different.

Investors would be ready to snap up anything that came to market - and the City would be happy to meet demand. Companies would no longer be able to defer funding plans. Private equity funds that had backed management buyouts and smaller companies would be desperate to realise their investments through stock market flotations.

For a few heady weeks, glory days seemed to be back. But investors are becoming as choosy as diners in a curry house wondering about chicken tikka masala. Too many companies worth less than £50m have been coming to market. Several have been pulled and now investment professionals are starting to shun roadshows. It is easy to understand why - they now have to complete a filing cabinet's worth of forms to explain their actions to their bosses.

Attending a presentation and deciding not to invest can lead to 12 man-hours of box ticking - hardly worth it for a stake worth a couple of million pounds.

Even the bigger transactions are struggling. There appears little appetite for a £700m flotation for C&C, the Ballygowan water to Tayto crisps group, while a £700m flotation for Siltronic, third-largest maker of silicon wafers, was pulled last week.

Bankers may blame Madrid terrorist bombings and Middle East violence, but the fact is that investors are simply more choosy. They were stung by the dotcom boom and they will stay on the sidelines until they see keenly priced offerings from well-known companies with solid businesses and strong cashflow.

EASTER is cancelled as far as accountants are concerned. They will sit in darkened rooms trying to make sense of the Finance Bill - the Budget to the rest of us - published on Maundy Thursday.

All indications are that, in verbosity, it could break Gordon Brown's previous record, the 350-page 2002 Finance Act.

To put it in perspective, the first Finance Act of the Thatcher era in 1979 managed wholesale, radical change in 20 pages.

Brown, apparently, will need nearly 20 times as many for the non-event of Budget 2004. 'Space' and 'waste' come to mind.