Today’s revelations about the huge increase in FTSE 100 company director pay are indeed shocking. If fat cats at the top are recording annual earnings increases of 50 percent while their junior staff are getting rises of less than inflation, it blows apart any idea that “we are all in this together.”
We seem to have come a long way from the time when the then chairman of Lloyds Bank, Sir Jeremy Morse, did not take all of his much more modest pay because “he did not need it.” Clearly no-one “needs” to earn the £2.3 million which is now reported to be the average pay of a FTSE 100 executive director.
Much of these high earnings comes from bonuses. These are the equivalent of winning the jackpot at the casino. I was in the fortunate position of receiving bonuses when I was a senior manager in a public company (though on a much smaller scale). But they never convinced me that this was the way to maximise employee performance. Self-repect should be the main driver, the wish to do a job to the best of your ability for proper and regular reward. There is a place for modest bonuses, but too great and they distort priorities to achieve tick-box targets, often at long-term cost to the organisation.
Clearly something must be done to shame companies into being fairer in the way they increase remuneration for employees from top to bottom. And there is absolutely no case for George Osborne to axe the 50 percent income tax band if people at the top are showing such lack of self-restraint.
But I am surprised at the calls for more transparency in executive pay. The rules governing quoted companies ensure a lot of transparency even if we don’t like what is revealed behind the veil. When you see square after square in smart parts of London with multi-million pound houses, it isn’t difficult to work out that there are masses of other people apart from company directors who receive wildly disproportionate incomes.
It’s just that if they are running private unquoted companies, or being senior partners in firms of lawyers or accountants or advertising agencies, we just don’t know what they earn and they avoid the public criticism. At least FTSE 100 companies generally make things and add value.
Yes, we need the searchlight of transparency but it should be pointed across the board and not just on the easy targets whose earnings have to be published by law.
Yes, but without removing the light from this.
The global economy remains unwell, suffering the mother and father of all hangovers after the party got a bit, well, wild. “I’ll never drink those bloody bubbles again,” it whispers from time to time. Symptoms include weight loss in the bank account, aching in the pension fund and chronic pain in the job and housing markets. The heart is trying to pump money around the system, but the arteries are dry. The patient also presents signs of depression.
Businesses, important organs in the global economy, are self-medicating to rebuild strength and heal wounds. Thousands of employees have been given the opportunity to make a personal sacrifice with their jobs. Those retained work harder, to give more and maximise the cash coming in and minimise what goes out. Still, we’re sailing together aboard HMS Abstinence. Except it turns out we’re not.
To rub salt into the wounds left by the surgeon’s scalpel, this follows a 55 per cent rise in 2009/10 when profits recovered after the initial phase of recession.
News like this saps fragile employee morale and make many stop to reassess their corporate commitment. And who can blame them after enduring close to zero pay rises in the last few years while inflation galloped ahead. Meanwhile they’ve had to cull jobs and experience increased workloads all around them.
Employees up and down the country have responded to their CFO’s call for austerity and speeches from the CEO about how, after taking the difficult decisions now, they’ll re-emerge as a stronger, fitter and more competitive business.
As you will know Sandy, one of the biggest challenges for the internal communications team is the inherent and enduring cynicism that employees have towards the most senior managers. Good employees can typically be counted on to give more if they know everyone’s sailing in the same boat.
Too many CEOs forget that their compensation represents the aggregated efforts of the entire workforce during the year. IDS’s survey suggests that today’s CEOs are gambling that the next time the workforce needs calling upon to make sacrifices for the good of the business, they themselves will be long gone, enjoying the rewards amassed when times were tough.
Turn that torch back around!
Comment via Facebook:
Simon McGrath: The figures (and the way the bbc has reported) them are very misleading. most of the increase has come from increased bonus ( because firms profits went up) and increases in share prices. In any case the most important thing is that this pay is properly taxed (which it is)
More comments via Facebook:
John Manning: Sorry to disagree Simon, but the most important thing is that the workers are treated equally and fairly. In most cases they are not.
Margaret Capon: Pay is taxed. Bonuses are not. Iif you look at a case by case basis, bonuses went up despite massive drops in profits and plummeting share prices.
More comments via Facebook:
Sue Grieve: There is something deeply wrong when those earning the least are taxed the most, and those earning the highest amounts are taxed the least.
Sue Grieve: Also – there is a strong link between inequalaity in income and inequality in health. And inequality in both has been increasing steadily for about 30 to 40 years.
Simon McGrath: @margaret – it is simply not true to say that bonuses are not taxed. Also i would like to see your evidence that bonuses went up while prifits went down?
Simon McGrath: @sue – the top 10% pay over 50% of all income tax. so really not the case they are taxed least.