Outlook: Two men in a bath run into trouble over ITV merger

Thin cats rule; British Airways

Maybe ITV can run a bath after all. Whether the two companies that largely own it will be allowed to share one is another thing. The famous bath insult was made by Tony Ball, chief executive of BSkyB, but in recent months there has been real evidence of the taps being turned on and the bubble bath foaming again. Ratings are back above those of the BBC, costs are down, the channel has seen some spectacular popular successes with I'm a Celebrity Get Me Out of Here, A Major Fraud, and Living with Michael Jackson, and there's even said to have been a reasonable upturn in advertising too. Interim results this week from both Carlton and Granada ought pleasantly to surprise.

But will they be allowed to merge? Both Charles Allen at Granada and Michael Green at Carlton view a successful merger as going some way to undoing the disaster of ITV Digital, for which they are both blamed to varying degrees. The general view in the City is that the Government is sympathetic, and that therefore a way can be found. On the other hand, the noises so far from the Competition Commission don't sound at all encouraging.

For choice, the combined group would keep both advertising sales houses, but with ITV still far and away the dominant platform for big league advertising spend, that's not really an option. One solution touted by Granada is that one of the sales houses could be divested, or put at arms length, so that it can be made to compete with the other. Judging by yesterday's "statement of hypothetical remedies" from the Competition Commission, that may not be an option either.

Instead the Commission suggests as an alternative to blocking the merger in its entirety "a divestment of both of the advertising sales houses that the merged parties currently operate, to be run in future as independent entities". There are other suggested options, but they are small beer set against the divestment remedy and the fact that the Commission doesn't seem to be entertaining the idea of a single sales house divestment at all sends out the strongest possible warning.

Whether divestment of both sales houses would be a deal breaker is unclear, but it is hard to see why the two would want to merge if they were not allowed to keep at least one of them. Everyone agrees that in order to compete properly with the BBC, ITV needs to unify its ownership and revenue sources, but the Competition Commission seems to be saying that lack of competition for TV advertising means that cannot yet happen except on draconian terms. Just to stress, this is not the Commission's final word on the matter, and for all Carlton and Granada know, it may yet say they are allowed to keep both sales houses. But it doesn't look good, not good at all.

Thin cats rule

Our "Fat Cats" league table is much written about and analysed elsewhere in the paper, but a couple of further points seem worth making. One is the table's limitations. The purpose is to rank FTSE 100 pay relative to performance as judged by total shareholder return over three years, allowing shareholders to judge whether they have been getting value for money from their chief executives.

Of necessity, there are lots of caveats. Some chief executives haven't been there three years, and therefore cannot be held accountable for a particularly poor rate of return. In other cases, shortening or lengthening the number of years used to calculate total shareholder return presents them in a much more flattering light.

The table is also confined to the FTSE 100. There are some even worse examples of undeserved remuneration among companies whose share price performance has been so bad that they have dropped out of the FTSE 100 altogether and yet the chief executive has remained on a FTSE100 salary and other benefits.

But in the round, the table seems fair enough, highlighting a large number of cases which would in any case intuitively have sprung to mind. Both Sir Peter Bonfield of BT and Ian Harley of Abbey National presided over a calamitous collapse in their company's fortunes, but both received huge payoffs.

There are some surprising findings too, with four of Britain's most highly thought of chief executives - Lord Browne of BP, Sir Terry Leahy of Tesco, Sir Christopher Gent of Vodafone and Tony Ball of BSkyB - all representing relatively poor value for money on our analysis. In all four cases, general perceptions of their achievement is a good deal better than the reality. In two of these cases, Sir Christopher Gent and Sir Terry Leahy, the situation looks much improved if six year rates of return are used, but even so, our findings would suggest that both of them have already had their glory years and are now finding it much more difficult to justify their very high levels of remuneration.

Attention is bound to focus on the cases of most undeserved pay, but just as instructive is the bottom of the table representing best value for money, or the thin cats. Here you should take note of Sir Kenneth Morrison, chairman of the Wm Morrison supermarkets group. His share price has been badly hit by his bid for Safeway, which has altered perceptions of the company's prospects, but even so he achieves the top ten in the FTSE100 as value for money. On a six year rate of return, he is the only company boss to achieve the best possible result, by virtue of his position as one of the best performers for one of the least big pay packages.

Of course, Sir Ken owns a large chunk of the company, so his dividend income each year is massive. By the same token, however, his interests are perfectly aligned with those of other shareholders, so pay is kept deliberately moderate. If only that were true of other companies.

Yesterday's vote at the GlaxoSmithKline annual general meeting was a defining one. A clear message was sent to boardrooms across the listed sector. The constant ratcheting up of executive pay and conditions has to stop. The old conflict used to be that between capital and labour. Today labour largely owns the capital through pension funds and other savings products. Those trusted with the management of our capital need to be more sensitive to the demands of its owners.

British Airways

Rod Eddington, chief executive of British Airways, has pulled off a very creditable performance given the severe turbulence his airline has been flying through this past two years. Set against the extreme losses being clocked up by his US counterparts, the achievement in producing a £135m pre-tax profit looks positively heroic. It looks pretty good against Air France and Lufthansa too.

Even so, doubts remain. Market conditions don't seem to be getting any better. Just as one crisis recedes, another seems to arrive, most recently in the form of Sars and the renewed outbreak of terrorist activity. Mr Eddington has performed miracles since he's been chief executive but this is an industry which needs more than miracles right now.

Despite its travails, there is still no sign of the big structural shakeout so much predicted in the wake of 11 September. Mr Eddington's response has been progressively to shrink costs and capacity, and to persevere with the strategy of concentrating on the ever more rapidly shrinking market for full service business travel. The jury is still very much out on whether it can be made to work.

Meanwhile, the decision to scrap Concorde will no doubt save lots of money, but it will also remove one of the airline's key points of differentiation. Mr Eddington cannot have dreamt it would be so tough, when he took over from Bob Ayling. At that stage, the task of turnaround looked relatively easy.

jeremy.warner@independent.co.uk