Are You Paid Too Much?
A report has been released from the High Pay Commission which was set up to look at executive pay and to consider if high executive pay is a good thing or a bad thing. The results seem pretty conclusive and the report states that.
“There’s a crisis at the top of British business and it is deeply corrosive to our economy. When pay for senior executives is set behind closed doors, does not reflect company success and is fuelling massive inequality it represents a deep malaise at the very top of our society…”
Executive pay levels have risen around 3,000% since the 1980s while average earnings have risen around 300% over the same period.
Nobody could claim this was fair but many respond by saying that you need to pay the best people to attract them to these top jobs. The alternative is that they would go elsewhere in the world to earn the high salaries available in other countries.
We can look to recent history to confirm that this argument is rubbish. Some, of these ‘Best People” were behind the banking crisis, earning huge salaries and bonuses as they burned the system down. The supposedly brightest and most knowledgeable. The ones on enormous salaries as payment for their ‘exceptional talents’ destroyed everything.
You will surely remember them because these were the same people who were unable to add up simple numbers. They were the people who thought it was possible to walk on water and conjure vast profits out of thin air so they could take home huge bonuses. The only thing they were right about was the fact they could take huge bonuses and get away with it. The mismanagement, lack of an understanding of basic arithmetic and stupidity was breathtaking and has damaged the lives of countless millions of people.
Another argument used to defend high rates of pay for executives is that they get paid for success in making their companies bigger, stronger and more profitable. The reality is often very different.
High salaries and bonuses often encourage the executives who benefit to make takeovers of other companies that appear to offer short term gains but often lead to long term problems. The cost of takeovers and expansion often leads to companies that are over extended financially, have few reserves and are thus unable to survive or prosper when circumstances move against them.
Examples that come to mind, based purely on reading what is in the public domain are:-
Northern Rock enjoyed a rapid expansion based on a risky business plan that required everything to remain as it was with little room for error. This expansion was seen as a wonderful thing by those deciding the salaries of the executives but left the bank open to collapse when the plan fell apart when the money supply became more difficult. Ultimately the UK government had to take over the bank to prevent its collapse. The chief Executive who masterminded its rapid expansion and ultimate demise walked away with an annual pension larger than many people would earn in their lifetime.
MFI was a successful retailer with stores around the country. It was successful until a management buyout, at a price that amazed many, all funded with borrowed money. It was a recipe for disaster if ever the company suffered from a downturn is sales caused by a recession. Sure enough it did and it closed its doors.
In both these examples it was not the employees being lazy or lacking commitment that led to the collapse. It was the way the company was managed and run by the people at the top.
There will be plenty of critics who will claim that this report and the frustration of the public over high executive pay is simply envy. i.e. If I can’t have high pay then why should you. There will be plenty of people who do think that but I suspect most people do not object to those who achieve great things being rewarded for their work. This applies as much to the office cleaner and the administrative staff as it does to the chief executive.
Many people in lower paid positions work just as hard and are eager to do whatever they can to make the company successful. Many lower paid staff are more loyal than those at the top. It is common for top executives to move on to a new company after a few years while the lower paid employees put their heart and soul into the company and gamble their future life on the success of the company.
Every member of a company contributes to its success. It can be said that the executive management chooses the direction of travel but it is the administrators, the salesmen and women and the guys and gals in the warehouse delivering the goods that makes the company work. Much like the Army where the generals make the plans and the poor bloody infantry put their lives on the line a company can only be successful when the workforce take those grand plans and somehow make them work.
Nobody is going to suggest that everyone should earn the same but it is a false argument to claim that the only way to get good people to run a company is by paying them 30 times as much as the average employee. Not everyone can run a company, just as not everyone can be a great footballer, but there is a wealth of talent available throughout the country and many would, given the opportunity, do a better job and be very content on a half or even a quarter of what many top earners get paid.
Executive pay is often spoken of as risk and reward. Executives take risks and get rewarded when they are successful. The sad fact is they are often rewarded for failure too and in the process they destroy the lives of those employees who were loyally working for the company for many years. If they want to earn high salaries based on a true risk and reward then they should lose everything when things go wrong just as their ex-employees do and they can benefit when things go well, just as their employees should.
Fairness in pay and conditions of executives and employees alike would help rebuild the divisions in society and encourage us all to feel as though we are in this together. At the moment it is very clear that is not the case.
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