There were a couple of pieces of news at the end of last week that should give anybody who is concerned about fairness and equality in Britain pause for thought. Firstly, figures from the Office of National Statistics show that cash bonuses from UK employers have reached £44.3 billion, surpassing their pre-crisis peak. At the same time, wage growth has slowed down from 2.5% to 2.3% in the last quarter, which includes the month following the vote on our European Union membership. It’s for these reasons that I welcome the announcement that the Business, Innovation and Skills Committee are launching an enquiry into corporate governance in Britain, with a focus on corporate governance and levels of executive pay.
Before I start, let me make one thing perfectly clear, I have no issue with people making good amounts of money if they deserve it. Where it becomes an issue is if that money bears no relation to their performance in the job, or if the money that they earn is wildly more than could ever be justified. Maybe Sir Martin Sorrell has done a good job as Chief Executive at WPP, but can you really say that his work is worth £70 million a year? Does the Chief Executive of BP, Bob Dudley, really merit a 20% pay rise when the company recorded the biggest operating loss in its history under his watch? Extraordinary bonuses and pay should be a reward for extraordinary performance. These days they seem to be handed out for run-of-the-mill management and even, in some cases, for outright failure.
It’s not like this is a new issue either. Some readers of this blog who are a bit older than me may remember the controversy when Dr Richard Beeching received the then-princely sum of £24,000 a year (£14,000 a year more than the then-Prime Minister Harold Macmillan) to dismantle Britain’s railway network, the negative consequences of which are still being felt today. In recent decades, the usual suspects in government and the media have hounded anybody who dares voice their concerns about excessive pay as “anti-business” or engaging in “the politics of envy”. This doesn’t change the fact that we are reaching a point where re-evaluating and resetting our attitude to excessive pay is not only desirable, but necessary. Increasingly there are signs that even the business world itself is beginning to tire of massive, unjustifiable salary packets and bonuses. Shareholder revolts against executive pay rises are becoming regular occurances, with bosses at companies as diverse as estate agents Foxtons to betting company Paddy Power Betfair feeling the pressure. If the government committed itself to regulating executive pay in a way that still allowed for some flexibility in terms of attracting the best talent and rewarding the best performances, I believe they would receive more support than you’d expect.
If you’re not convinced by the moral argument, then ask yourself these questions instead. Would you prefer tens of millions being spent to invest in and expand a business, or would you prefer to see it disappear into a CEOs back pocket instead? Is it really healthy for our society and economy that a small amount of people at FTSE 100 companies can take home pay packets that are 123 times higher than what the average worker here in Tameside can expect to earn? Is it really a good sign that pay for a director has increased by 47% since 2010 while workers received only a 7% increase over the same period? For these reasons and many more, I shall be watching the deliberations of the Business, Investment and Skills enquiry, and our new Prime Minister’s response to it, with great interest. Mrs May has said that she wants everybody to share in the country’s wealth. It won’t be long at all before she’ll need to start matching words with action.