Hunches fix top pay

FOR ONCE John Sclater, chairman of Foreign & Colonial, Britain's biggest quoted investment trust, was lost for words.

One of his shareholders got up at last Wednesday's annual meeting, in the panelled splendour of the City's Merchant Taylors Hall, to ask who the highest-paid director was and how his pounds 217,000 bonus was calculated.

The 'who' was easy. It was Michael Hart, the chief executive, who for the past 25 years has presided over one of the country's best investment records. The 'how' was more tricky. 'I have to admit it was a subjective judgement,' the non-executive Mr Sclater eventually admitted.

But according to KPMG Peat Marwick, the international accountancy group, Mr Sclater and the two other members of F&C's remuneration committee are in good company.

A survey KPMG is due to publish at the end of this month reveals that most non-executive directors decide their executive colleagues' pay on the basis of little more than hunch. Around 77 per cent said they considered it important to be on their board's remuneration committee, which usually decides how much their executive co-directors should earn and often votes on compensation for a sacking.

But less than half of those who had served on remuneration committees were given anything as thorough as a formal performance appraisal on which to base their decisions. The rest either nodded through an arithmetic formula, or had to make the same sort of personal judgment as Mr Sclater and his colleagues.

'No remuneration committee could carry out its duty without defining how the executive directors have performed,' said Sir Adrian Cadbury, author of the Cadbury report on corporate governance.

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