FOCUS: TOO MUCH CREAM?

In Britain they are fat cats. In America, they are heroes. But do we dislike top-earning executives because we don't understand what they do?

MONEY BROKERS in Britain and America date the beginning of the bear market not to Tuesday before last, when New York's Dow Jones index dropped by 300 points, but to the third week of June, when the senior partners of Goldman Sachs decided to opt for flotation.

The decision by the lions of the world's leading investment house (confirmed by another vote this week) to exchange the notional value of their partnership for the tradeable value of shares had both practical and symbolic significance. It signals the top of the market in the most obvious sense: the Goldman team believes today's price will be preferable to next year's. And in sacrificing the partnership structure, which is generally agreed to be the secret of their success, in order to make a group of rich men richer, it is a global apotheosis of ego-driven, fat-cat greed.

Few people will see it in those terms across the pond, where financial fortune is celebrated in an uncomplicated way and multi-billion dealmakers are admired as American heroes. But over here, naked self-enrichment is still regarded with distaste. We warm to high-profile entrepreneurs only if they pretend, as Richard Branson does, that they are out to do something friendlier than just to make money.

In the past few days, BP - one of Britain's least flamboyant companies - has surprised the world with the biggest industrial merger of all time: a $110bn (pounds 69bn) link up with Amoco of the US, with much of the media coverage focusing on the personality of the dealmaker, BP chief executive Sir John Browne.

Elsewhere in the jungle, Chancellor Gordon Brown has been rumbling about excessive pay deals for privatised utility bosses; Parliament has criticised railway privatisation deals which made millionaires out of small-time management buy-out investors, and the press has homed in on the fact that British bosses' pay rose by 18 per cent last year, far outstripping inflation, profit increases, productivity improvement or shopfloor wage rises. Meanwhile, share prices have been plunging, wiping billions off the value of private investors' savings and pension funds.

ALL THESE elements combine into a caricature of late-Nineties corporate culture which rekindles our disapproving instinct. It is a culture of winner-takes-all machismo, in which an elite of top managers, unrestrained by regulation, hostile taxes or shareholder pressure, rewards itself ever more handsomely for achievements which are more often to do with financial dealings provoked by greedy bankers from the City and Wall Street than with the efficient making and selling of useful products.

It is a culture which, in the pursuit of cost-paring and "merger synergy", has destabilised the working lives of everyone who is not part of the elite. It emphasises short-term earnings per share at the expense of long- term investment and innovation. And as a culture which has both fed upon and fuelled a meteoric stock market rise, it has contributed to the severity of the fall to come.

Like all caricatures this has elements of truth, but it needs to be put in a fuller context. In 1985, the boss of BP earned 16 times the salary of the average BP worker; in 1997, the multiple was 60. Since Margaret Thatcher came to power in 1979, executive pay rises have outpaced every other measure of rising prosperity - even more so in take-home terms, given that top rates of income tax were halved by the Tories.

And quite right, too, many people would say, since the narrow differentials and punitive tax rates of the socialist era were a grotesque disincentive to enterprise and advancement.

But where should that adjustment stop? Is there a "fair" differential between boardroom and shopfloor, or is there just an ever-rising "rate for the job" which (as Lord Hanson and others argue) British companies must pay to keep the best people in place, or lose out in global competition.

British chiefs are now paid 18 times the average factory worker's wage, whereas in Germany it is 11 times, in France 15, in America 24 and in Hong Kong 48. All of those countries have better productivity records than we do, so no one can argue that the higher the bosses' incentives, the better the corporate results. In America and Hong Kong, wider differentials may be justified because the path from rags to riches is much more accessible to all-comers than it is here. But in truth these figures do not bear too much analysis.

THE POSITION of Britain in the pay table is an accidental outcome of boardroom bargaining. It certainly offers no guide to the relative performance of British companies: last year's 18 per cent pay rises came on the strength of 5 per cent profit increases. Just as over-powerful unions did not know when to stop asking for more in the Seventies, so the bosses have greed in their eyes today, and have been influenced not a jot by calls for "fairness" from John Major in his day and now from Gordon Brown.

But they have been influenced by the example of America, by the urgings of the City of London and by a flattering financial media. Those forces have encouraged the creation of business "stars", individuals who are credited with making all the difference in their companies' results and who have to be rewarded accordingly.

BP, a group which has done more than most to preserve a collective, low- profile management ethos, is now personified by Sir John Browne. Granada these days is Gerry Robinson; Barclays is Martin Taylor. Perhaps most vividly, the Anglo-American drugs group SmithKline Beecham is Jan Leschly, the ferocious Dane whose long-term incentive package is said to be worth pounds 66m and whose ego both drove and then tore apart the proposed mega-merger with Glaxo Wellcome which hit the headlines earlier this year.

This new breed of top dogs is encouraged to behave as entrepreneurial owners rather than salaried stewards, and the bulk of their remuneration packages consists of share options or bonuses calculated on share performance.

As share values shrink in a falling market, so will executive pay, it is argued; there is some fairness in the system after all. That remains to be seen: more likely the bosses will claim they need the incentive of formulae which recognise how well they have struggled against the trend of recession, or some such, rather than on a measure so crude as the price of the company's shares. They will not easily accept that "the rate for the job" can go down as well as up.

But in the tougher economic climate of the next few years, it will at least be more obvious which of the fat cats are really worth their salt. In a rising market, institutional shareholders have sat back contentedly, not caring how much the top men paid themselves so long as the share price kept going up. (In Britain, unlike America, executive share option packages are rarely so big as to dilute the interests of other investors.)

In bad times, however, shareholders are acutely interested in the question of whether the top man really makes a difference. If he does not, he will be out on his ear - and let us hope that his contract does not award him a "golden parachute" of three years' salary as he goes. High risk is part of the system we have imported, alongside high reward.

The British public, meanwhile, is unlikely to arrive at an American-style consensus view that greed is good, that other people's wealth is not to be begrudged, but to be enjoyed as a source of titillating entertainment. Fat cats will continue to be castigated - with the encouragement of Labour ministers when it suits their agenda - whether they deserve to be or not. Perhaps that is a pity, because resentment of overpaid water company Jack-in-offices and City wide boys too easily spills over into generalised hostility towards business success.

If we cannot salute genuine achievement, we will not arrive at the other part of the American dream: a system that nurtures small ventures and good ideas into giant corporations like Bill Gates's Microsoft.

Fat-cattery may be offensive, but to try to restrain it by regulatory interference would do far more harm than good. Unfettered capitalism is, after all, the best engine of prosperity yet invented, but no one ever said that it had to be universally fair.