Executive Pay: No banker is worth 169 times more than usPosted on: 22 November 2011 by Alexander Hay
As an inquiry into executive pay concludes that lavish bonuses and salaries are deleterious to both our economy and our society, what does the government intend to do about it?
One of the great myths of the 80s was that lame duck British business, riddled with union militancy, was too inefficient and hidebound to compete in the world. If the markets were unregulated, the reasoning went, everything would correct itself and the UK's top ranking businessmen would drag the rest of the country up with them via trickle-down economics.
So it was that the markets were liberalised, and now - in 2011 - what do we have?
A permanent body to investigate and report on levels of executive pay which have now reached "stratospheric" levels should be set up by the Government, an inquiry concluded today.
The High Pay Commission reveals that the pay of top executives has soared by more than 4,000 per cent in 30 years, undermining productivity and "damaging" trust in British business...
Well, at least they broke the unions, one supposes. But surely, all those bonuses and fat salary packets are only there to reflect the value a top executive brings to a company, reflecting the oodles, yes oodles, of growth they've engendered? No, as it happens:
...The High Pay Commission's study detailed the pay of Barclays' former top executive John Varley who, the study said, earned £4,365,636 – 169 times more than the average worker in Britain today, and an increase of 4,899.4 per cent since 1980 when the top pay in Barclays was just 13 times the UK average.
The chief executive in Lloyds Bank has seen his pay increase by 3,141.6 per cent to £2,572,000 over the same period – 75 times the average Lloyds employee. In 1980 it was just 13.6 times that of the average Lloyds worker, said the report.
Average wages in the UK today are a "modest" £25,900 – up from £6,474 in 1980 – a three-fold increase...
So if we take Joe Non-Entity with his average income, which would just about cover the deposit for a hamster cage in Islington, one can assume there has been some growth in the last 30 years. Indeed, incomes have risen above inflation, but only by 19%. (And bear in mind that house prices have gone up on average by 212%, once you factor in inflation.) Compare and contrast, then, with the inflated cost of keeping John Varley in the lifestyle to which he has grown accostomed. Assuming a salary of £84,162 in 1980, he should be earning £334,944.01 a year now, if his pay had gone up by the same average as everyone else's.
What has he done for Barclays to earn such a hefty pay-out? Well, Barclay's only made a profit this year after cutting 3000 jobs, paying minimal tax and having the good fortune to have lower charges for bad debt. In other words, it's hard to work out what Varley has actually done to deserve all that money. In fact, the answer is much more prosaic - he can pay himself that much because he can get away with it, and he's part of a culture where this is seen as perfectly acceptable, so there is no in-built taboo towards ramming one's snout in the trough:
...The report showed that decisions to award huge pay packages are set by a "closed shop," shrouded in highly complex detail, effectively hidden from shareholders, staff and the public...
This is the real legacy of deregulation. The lame ducks are still quacking away happily, and rewarding themselves for failure. Elsewhere, corporate welfare is making the rich even richer at the expense of others.
Again, we run into the problems caused by magical thinking, a juvenile belief that all it takes is one big idea and everything will work out for best. In truth, the John Varleys were always there, waiting in the wings, and regulation was there to keep them under control. Or as the report puts it in a rather obvious way:
"...There appears to be little truth in the myth that pay must escalate to halt a talent drain in executives. The growing pay gap between the top 0.1 per cent and everyone else is increasing public disillusionment, damaging trust and fuelling the view that business leaders are in it for themselves..."
Don't expect any real changes in this parliament, however.
[SOURCE: The Independent]