Flame Out and Prosper.(executive compensation)(Brief Article)

When Europe wants to insult British business culture, they call it "Anglo-Saxon," by which they mean "almost as greedy as the Americans." So the Continent will be tickled to know that even many Brits are embarrassed by the latest "incentive" imported from the United States: huge payoffs for failing CEOs. The cases in point: Peter Bonfield, who amassed [Pound sterling]30 billion in debt over six years at British Telecom, and left last month with [Pound sterling]1.5 million reward for this mess. Then there was Lord George Simpson, who took home [Pound sterling]2.8 million when he left Marconi--a shambles--in September. British unions were predictably furious. But so was the Institute of Directors, a nationwide organization of company chiefs. "Marconi and BT have stretched people's patience," says institute head of policy Ruth Lea. "It makes us look like greedy fat cats without an ethic to our names."

It sure does. Executive pay has been spiraling upward since the early '80s, when Margaret Thatcher's new government set out to restore entrepreneurial zest to a doddering Britain. America under Ronald Reagan was the model. Tax rates on high incomes were slashed; tax breaks for stock-option schemes were introduced. "Once Thatcher came into power the shackles came off," says Steve Tatton of Incomes Data Services (IDS). "The government gave the signal, reinforced through the tax system, that big rewards were OK."

The idea was to reward success, not failure. All too often, however, a combination of CEO clout and clever contract terms are guaranteeing pay, regardless of performance. A survey last month from IDS showed that the average income of CEOs at Britain's top 100 public companies rose 18 percent in the 12 months to June, much faster than corporate profits. Meanwhile, the pay of workers rose by 4.5 percent, widening an income gap that is already the widest of Europe's leading economies.

True, British CEOs still trail Americans. Take Steve Jobs, who received Apple stock options that were worth $872 million when he got them in January 2000. Of course, they're worth only a fraction of that sum now- -but that's life in the "equity culture." International consultants William M. Mercer figure British CEOs still get 39 percent of their compensation in guaranteed salary, compared with just 8 percent in America.

Some form of "golden goodbye" is now the norm in Britain, and the list of highly paid CEO flameouts is growing. Robert Ayling was widely blamed for the ...