Tuesday, October 19, 2010

Let's Make CEOs Justify Their Wages

THE GUARDIAN: If business leaders had to explain why they are worth their extravagant salaries, we might see an end to corrosive inequality

When an economy is booming, unjustifiable inequalities in pay can easily escape our attention. In these straitened times, with big cuts in public services about to hit the most vulnerable, it is time to look more carefully at how work is rewarded in our society. We need to realise that recognising the significance of incentives should not lead to acceptance of the daylight robbery that passes for executive compensation today. A good place to start is by looking at corporate governance.

The facts about income inequality in the UK are nothing less than mind-boggling. The average income of a FTSE 100 chief executive, according to the most recent Guardian survey of executive pay, is over £3m per year, including bonuses and pension contributions. This is more than 100 times median household income. It is not uncommon for CEOs to run 200 or 300 times as much as the median pay of their employees or, in the case of Terry Leahy's final year at Tesco, for a CEO to be paid 500 times the average take-home pay of his colleagues.

Moreover, executive pay continues to march relentlessly upwards, unconnected to skill, judgment or underlying profitability. While the FTSE lost a third of its value in the year to September 2009, executive pay rose 10% during the same period. According to the Work Foundation, the ratio of average CEO pay to average UK earnings rose from 10:1 in 1980 to 75:1 in 2006 (and has continued to grow since). In short, the gains of economic growth are becoming increasingly concentrated in a small number of hands, while the wages of ordinary people have stagnated.

Should we care? New Labour's answer, famously encapsulated by Peter Mandelson, is that we should be "intensely relaxed about people getting filthy rich". Looking at runaway top-pay with a clear eye on its social and political consequences, Mandelson's claim looks as short-sighted as it is wrong-headed. Read on and comment >>> Martin O’Neill | Tuesday, October 19, 2010

Whatever happened to conscience? No responsible chief executive would feel good about siphoning off the cream for himself and leaving the worker bees with the crumbs. But these days, it seems that 'responsible' and 'CEO' are mutually exclusive concepts.

Taken to the extreme, this situation could eventually lead to revolution. History shows this to be so. Revolutions occur where extreme wealth and extreme poverty collide. The British are very complacent people, especially by comparison with the French, who have currently taken to the streets. But even a worm will turn. The élite shouldn't push their luck.
– © Mark


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