Top Pay Scandal

I was a guest on the BBC's 'Call Kaye' programme this morning discussing the 49% increase in directors pay. Rightly, there was a lot of anger at this outrageous abuse of power. I almost felt sorry for David Watt from IoD Scotland who usually gets wheeled out to defend the indefensible.

My opening point was that a time when our members are suffering a pay freeze and attacks on their pensions, they would welcome a pay rise in line with inflation - 5%, never mind 50%. These directors are same people who want to end unfair dismissal rights and cut workers pay and pensions in the public and private sector. They have no shame as they get together to award each other pay, bonuses and massive pensions.

I also had the opportunity to correct some myths.

• There is no real link here with performance. CEO pay has quadrupled in the last ten years, while share prices have fallen.
• No they won't be poached by overseas companies. Only one FTSE 100 CEO has been poached in this way in past 5 years, and that was by another UK company. 60% of appointments are internal and turnover is only 6% - half the national average.
• They won't move overseas. We were told a few weeks ago that banks will move to the Cayman Islands. Well I would like to see their taxpayers finance the next bailout.

A number of callers referred to the culture of short termism and that is a contributory factor. But this is also a failure of moral leadership. Between 1949 and 1979 top pay actually fell as a proportion national income. After 1979 it has been going in the opposite direction. The post war generation of leaders has been replaced by greed and avarice. Individualism and wealth, the Thatcher values, have been promoted over any sense of fairness or decency. CEO's now earn 145 times average wages. If we continue as we are that will rise to 214 times average wages by 2020.

So what are the solutions. Capping wages, possibly as a multiplier of the lowest pay would be one solution. Progressive taxation is another. The High Pay Commission is looking at some structural solutions including:

Transparency: more publicly available information and meaningful disclosure.

     Accountability: how pay at the top can be made more accountable through reforms of the Remuneration Committees and the inclusion of other stakeholders.

Fairness: The British public have a deep and ingrained sense of what is fair. When it comes to pay at the top, this is fundamentally about playing by the rules. Need reforms that could engage greater fairness in relation to pay.

It is that last point I would finish on. This isn't just an issue for the companies concerned and their shareholders. It is an issue that affects us all. We know that more equal societies to better on almost every measure. Top Directors pay is an important part of the drift towards a less equal society in the UK, and we are paying a big price for not tackling this issue.