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.Tagged in: banks, executives, High Pay Commission
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