Michelle Rodger - At last, the regulators are hounding the fat cats. Happy hunting

'Before a cat will condescend, To treat you as a trusted friend, Some little token of esteem. Is needed, like a dish of cream."

Cream? Ha! TS Eliot got that wrong. Nothing less than a multi-million pound salary will do for Britain's fat cat bosses, who are currently enjoying their greatest ever remuneration excesses.

While lesser hard-working mortals are faced with a bare minimum percentage salary increase this year, business leaders are milking a whopping 33% pay rise over the past year, bringing the average package for a typical top exec to £4.6m.



Staggering, isn't it? According to figures researched by pay consultancy MM&K, a boss is getting more than 200 times the handout awarded to the average private-sector worker; official figures show he – or she – got a mere 3.7%, and many got less.

Bob Diamond, boss of Barclays Capital, took home more than £21m in pay and bonuses last year. And the highest paid director at investment bank Goldman Sachs enjoyed a £5m pay rise, taking his total package to £11.7m.

And do you know what? The company under your stewardship needn't have been all that successful for you to get a sizeable package. Just look at the executives at failed bank Northern Rock: former chief exec Adam Applegarth walked away with a controversial £760,000, and just last week the financial regulator in charge of supervising Northern Rock was paid off with around £600,000.

I'm not the only one who thinks this is getting a little out of hand. Even the French president, Nicolas Sarkozy, has voiced his opinion on the matter, warning against golden parachutes to business leaders.



The global credit squeeze and high oil prices have made executive pay a hot topic in all European countries, with governments complaining that self-indulgent business leaders are making it difficult to argue for low annual pay deals for lower-level employees. According to reports in a French publication, payments to France's top CEOs increased by a whopping 58% last year.

But it could all be about to change. The "social scourge" of steep increases in executive pay is clearly in line for a big shake-up. France, which took over the EU presidency earlier this week, is to ask finance ministers to consider a European directive to curb disproportionate bonuses or golden handshakes to company bosses. In Holland, there is already a draft national law to punish what it calls "unjustifiable" payments to business leaders.

Holland's highly controversial draft law would impose a 30% tax on companies giving high bonuses or severance payments to top employees. The so-called "fat cat tax" has sparked outrage among big Dutch companies.

The Dutch finance minister stated that you can't expect employees to tighten their belts while those at the top are being paid ever-bigger bonuses, which are often not even linked to their performance. "Public support for entrepreneurs will plummet if this continues," he warned. He's right, of course. And this got me thinking: in the real world – that's where you and I live, not the world of seven-figure salaries – how do you judge what someone is worth? What price do you put on the contribution made to your business by an employee, a fellow member of the management team, or even yourself? It's clearly a difficult and rarely objective process.



Is it performance based? Is it based on previous effort or future potential? Does like or dislike come into it? At what point do you realise he or she is not worth any more than that? And how in God's name do you tell them?

This tends to be more of a problem in an entrepreneurial company, where attracting quality staff in the early start-up phase is a struggle.

More often than not, cash-strapped entrepreneurs – usually consummate salesmen – will employ people with little or no experience, offering them an opportunity they might not otherwise get. Then they will tie them in with promises of challenging and innovative work, training, an exciting environment, a higher salary and the ubiquitous lucrative share options.

But, as the firm grows in value, not just in financial worth but in reputation and credibility, and the salaries of your employees grow too, it can be very difficult to ensure that you are paying the market rate.

It's easy in good times to be too generous and offer more and more money. But then along comes an economic downturn and a global credit crunch, and your business begins to suffer. What happens to those inexperienced individuals who joined with no qualifications? At what point do they cost more than they deliver?

Maybe cash flow is tight, sales are slowing down, and you have to consider the bare minimum pay increase, or, worse still, pay people off. And if, God forbid, the proverbial hits the fan, how on earth will they find a job with a similar package? Undoubtedly, they will have altered their standard of living in line with salary, they will probably have new cars, a bigger mortgage, maybe even kids in private school.

So consider this: have you been fair in paying ordinary, average workers over the odds, when they possibly couldn't earn that much in the open market?

The executives at Barclays, Goldman Sachs, even Northern Rock will not find it hard to scoop a similar package when they move on. (Mind you, with salaries and pensions like that they might not need to find another job.)

But in all probability your employees will, and your initial generosity may turn out to be more of a burden than was ever intended.

So think carefully when establishing what your people are worth. Ensure you can justify their salary. And be generous rather than extravagant. Remember, money can't buy happiness.