Do building society chief executives deserve big salaries?

Customers of Saffron Building Society turned out in some great numbers at last week's AGM, to let the chief executive know that they didn't like the look of the 33% payrise that he'd been awarded this year. With total remuneration of £323,000, Jon Hall's package is not exactly in the league of big bankers. But if £250,000 was enough for him last year, then customers rightly wanted to know how he could justify taking home an extra £80k + this year.

In the league table of overpaid building society chief executives, Mr Hall is by no means the worst offender. Chris Pilling at Yorkshire Building Society received a payrise of over £120,000 to £870,000 in 2013. While Skipton's David Cutter received a raise of over £130,000, taking his total package to £751,000.

How much is too much?

Setting remuneration is a tricky business. There are no right answers - but when it comes to building societies and not-for-profit organisations, I'd say that there are plenty of wrong answers.

Most remuneration committees start by benchmarking against what other people are earning at equivalent organisations. The question is how they determine what is equivalent. The right benchmark for building society chief execs is other building society chief execs - not what these people could earn if they waltzed off to a bank.

I'm simply not swayed by the argument that you have to pay astronomical salaries to attract good executives. There are plenty of people who choose to work in the building society sector because of its different values, and different ownership structure. When I see building societies paying banking sector salaries to their staff, I worry that the priorities of these execs are not straight. Far from needing to pay more to retain those people who demand high salaries, I would suggest that building societies should employ entirely the opposite strategy. Find great people, for whom money is a secondary motivation. You can live very comfortably on £250,000 in Yorkshire. If the best candidate at interview tells you that he needs three times that, he should be sent packing.

Building societies need strong leadership

It takes strong character and leadership to resist the call of the high salaries in the banking sector. And it's all too easy for building society execs to convince themselves that they are basically small banks, and so deserve equivalent salaries.

But the mutual ownership structure is sacred. Building societies are owned by their customers - most of whom earn less than the bonus that the chief executive takes home every year. Any chief executive that believes their customers are in support of their high remuneration is kidding themselves.

High paying building societies expose a cultural problem in their organisation, where commercialism comes ahead of customer interests. Building societies should be the model for how we want our financial sector to look, they shouldn't be providing new examples of excess. Perhaps it's no surprise that building socities haven't cleaned up after the banking crisis. They are still too busy trying to imitate them.