High pay is bad for business

Just read the interim report of The High Pay Commission, set up by the Compass pressure group and the Joseph Rowntree Charitable Trust.

One of arguments the Commission advances to support the proposition that many executives and bankers are grotesquely overpaid is the fact of  widening social inequality. I do share this concern.

But I think the stronger argument in the report is that highly-paid employees are not delivering value for money for shareholders.

The Commission cites a couple of powerful pieces of research to make that point.

1) A survey in 2010 found that between 1998 and 2009 the pay of chief executives of FTSE 100 companies rose by 6.7% a year, while earnings per share fell by 1% a year over the same period. This isn’t pay for performance; it’s rewards for failure.

2) Last year Barclays awarded its employees three times as much in bonuses as it paid investors in dividends. And as I have previously pointed out, UK bank shares have massively underperformed the stock market in recent years, while gigantic bonuses have still been paid out. Banks are  being run in the interests of their employees, not their  owners.

The trouble with the inequality argument against high pay is that it is unsubtle. Most people accept it is fair for people with very rare talents, such as footballers or entertainers, to be awarded vast salaries. Thus the likes of Bob Diamond can use Wayne Rooney as a human shield when challenged about their remuneration.

Better for progressives to push a different line in opposition to runaway remuneration at the top, one that bypasses the stagnant debates with rightwingers about the “politics of envy”, disincentives for effort etc.

And the line is this: excessively high executive pay is bad for business.

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• Guest

   Damn straight, comrade. Work for free, I say ! Up the unions, and up yours.

• StimParavane

  Selfish behaviour only leads to suffering.

• StimParavane

   The “free market” is an illusion.

• madjay

  I agree – if anything, footballer wages are far easier to justify then bankers’ bonuses. Wayne Rooney et al have to justify their pay week in, week out in public. There may be many people after Wayne’s job, but how many could do it as well? Some might see his skill and talent as just kicking a ball around a field, many others see it as bringing immense pleasure to their lives. The point is that many would accept that his talent is special and the rewards he gains reflect the pleasure that talent brings to many millions of people. 

  With bankers and senior executives that case is harder to make. Do bankers create wealth and then keep a fair slice of it for themselves, or does their control of the financial system allow them to scrounge a fat slice of a cake other people have made? Do top executives make key decisions that largely determine the success or failure of a business, or do they take excessive credit for the hard work of everyone else in the organisation? Is their talent special like Rooney’s, or are they just the best at promoting themselves and networking? Given the ability of top earners to make fat returns from failure,  I know how I’d answer these questions.