Cable Turns Screw Over Royal Mail Chief's Pay

By Mark Kleinman, City Editor

Vince Cable is demanding that the board of Royal Mail limits a pay rise for its chief executive to the same level awarded to the rest of the newly privatised company's workforce.

Sky News can reveal that the Business Secretary has informed directors of the postal operator that a salary increase of more than 3% for Moya Greene could prompt the Government to vote against Royal Mail's remuneration policies.

The warning has set the scene for an explosive row between Mr Cable and the Royal Mail board, some members of which believe Ms Greene is significantly underpaid as the boss of a FTSE-100 company.

Royal Mail reports its annual results towards the end of May, and will hold its annual general meeting during the summer.

Vince Cable wants to limit a pay rise for Moya Greene

As a 30% shareholder in the company, the Government would deliver a serious blow to the credibility of Royal Mail directors if it voted against their pay report.

Mr Cable and officials at the Department of Business, Innovation and Skills have not yet made a decision about how the Government will exercise its vote.

However, with new executive pay rules drawn up by Mr Cable now in place, it would also undermine his status as an advocate of boardroom reforms if he was seen to endorse even tacitly an inflation-busting pay increase for Ms Greene.

Under a deal struck between Royal Mail managers and the Communication Workers' Union earlier this year, workers will receive a 9.1% pay rise over three years, a deal which included 3% increases in 2013 and 2014.

Royal Mail insiders pointed out on Sunday that Ms Greene did not receive a pay rise last year and has not had one since 2010.

"Since that time, frontline staff have had a three-year pay award of 6.9%, plus a £1000 lump sum, and now the further 9.1% rise and a £200 lump sum," said one ally of Ms Greene.

The company's chairman, Donald Brydon, has argued publicly that she deserves a substantial salary hike, saying in January:

"I think it's only fair to pay Moya the right market rate for her job."

"I'm not in the school that says top executive pay is without fault, there are parts of it that are egregious and wrong. But happily we are so far away from that end of it that to try and right-size her a bit I think is a necessary part of making sure we keep her."

Mr Brydon did not quantify the perceived shortfall in the Royal Mail chief's pay, although Ms Greene is paid less in aggregate than her peers at the helm of companies in the FTSE-100. She is also paid substantially less than her predecessor, Adam Crozier.

Ms Greene was paid a base salary of £498,000, with further sums totalling nearly £1m based on her performance and directors' judgements about her success at modernising the company.

Royal Mail has pledged not to give Ms Greene a significant pay rise until after the current financial year ends.

Some of the company's directors are keen to avoid a public row with Mr Cable, believing that the Government is likely to sell its remaining 30% stake within months anyway.

That would make it much easier to hand Ms Greene a big pay rise, with Royal Mail no longer even partly-owned by the state.

However, some board members believe there is a risk that Ms Greene could leave or be poached if her pay is not increased in the short term.

"The directors have a fiduciary duty to do what is right to keep the best possible leadership in place," a source close to the board said.

For Mr Cable, taking a public stand over pay at Royal Mail is also important because of the criticism he has faced since authorising its £3.3bn privatisation last autumn.

He denied that the company had been undervalued by the Government and its advisers, despite an initial surge in Royal Mail's share price.

While the shares have fallen moderately since their post-flotation high, they closed on Friday at 581.5p, valuing Royal Mail at just over £5.8bn.

The National Audit Office is expected to publish its report on the privatisation process in the next fortnight, with insiders saying on Sunday that it was likely to be critical of the valuation settled upon by the Government.

The BIS Select Committee will then publish its own report on the sell-off, although its cross-party membership may mean that severe criticisms are muted.

Under the reforms instigated by Mr Cable, shareholders in public companies will have a binding vote on future pay policies and an advisory vote on the previous year's remuneration report.

With the AGM season about to get underway, companies such as Barclays are anxiously trying to deflect the prospect of a major investor rebellion.

The Business Secretary has in the past praised Ms Greene as "an exceptionally good CEO" although the pair have clashed before over a £250,000 housing allowance paid to the Royal Mail boss, which she later returned.

If the Government did oppose Royal Mail's pay report, it would be vulnerable to accusations of hypocrisy given that the chief executives of the state-backed Lloyds Banking Group and Royal Bank of Scotland are each eligible for far higher pay deals than Ms Greene.

Such a move could also leave some Royal Mail directors feeling that their positions were untenable because they were not able to act in the interests of all shareholders by securing the services of the company's chief executive.

Royal Mail and a spokeswoman for Mr Cable both declined to comment.

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