The High Pay Debate

The High Pay Debate

Comment on executive pay tends to put the cat amongst the pigeons. Those at the top refer to criticism as sour grapes: the resentment of the unrealistic who simply don’t understand how business works. Those lower down the food chain see high paid executives as greedy and out of touch. All this polarisation does is preserve the status quo.

A look at some of the figures, however, would indicate that the current situation is, at the very least, unsustainable. The recent report from Incomes Data Services revealed that the total earnings of FTSE-100 directors rose by an average of 49 per cent over the last financial year, at a time when overall wages were falling in real terms.

The High Pay Commission shows that over the past 30 years, some FTSE-100 companies saw top pay rise from 14 times the average salary to 75 times. The fact that company performance has shown no sign of a commensurate increase in performance over the same period should concern us all.

A new approach is needed which takes a more responsible view of executive remuneration. First and foremost we need greater transparency and clarity. The complexity of executive pay is such that it is often passed by shareholders who do not fully understand the deal and give boards the benefit of the doubt.

Payment for failure also needs to be addressed. While few would argue that directors who generate profit and deliver growth deserve healthy remuneration, what business would agree to a deal that pays more for delivering less?

It is also time for representatives of major shareholders such as the Association of British Insurers to hold remuneration committees to account. If the share price goes down, those at the top should take a little less, not a little more. Base pay should be the default if share prices are not rising. Bonuses should be clearly linked to performance that benefits shareholders.

Trust in business is at an all time low. A recent editorial in the Financial Times urged shareholders to exert greater pressure on pay, as with other costs, to help British businesses rebuild that trust. It is time to have the debate and create a more balanced structure for the benefit of the country as a whole.