The Big Question: Should there be a commission into high pay, and how would it operate?
Tuesday 18 August 2009
Why are we asking this now?
Compass, a left-of-centre pressure group chaired by Neal Lawson, a former Gordon Brown aide, has launched a campaign to crack down on excessive salaries among high earners. It is pressing the Government to set up a High Pay Commission to regulate the pay of top earners, which would mirror the Low Pay Commission set up in 1998 to recommend the level of the national minimum wage. It would take evidence from the City, businesses, trade unions and other interested parties and make proposals to ministers.
Supporters insist the commission would not dictate the pay policy of every company. Instead, it would set benchmarks such as a "maximum wage ratio", compelling firms to link their top salaries to those of their lowest-paid employees. There could also be a punitive 90 per cent tax rate on huge bonuses.
What is the scale of the problem?
Compass argues that the swift return of the "bonus culture" in the City of London shows the financial services industry has failed to learn the lessons of last year's crisis, widely blamed on a remuneration system which encouraged excessive risk-taking. It wants to go wider than the banks by addressing unfairness on wages across the whole of industry.
The group claims that the pay packages of the UK's 100 top company bosses rose by 7 per cent last year to an average £2.6m in a year when the country's average wage remained flat and the UK stock market lost almost a third of its value. It says this demolishes the myth that pay is related to performance. It calculates that an employee on an average salary of £24,900 a year would have to work 104 years to receive the same as an average FTSE 100 chief executive officer enjoys in just one year. Put another way, someone working a 40-hour week earning the minimum wage would have to work for 226 years to accrue what a FTSE 100 CEO gets in a year.
How will the campaign work?
Compass has won the initial backing of more than 100 politicians, trade union leaders, economists, academics and commentators. It intends to build support through an email-led campaign and to "name and shame" high earners in FTSE 100 companies and those in the financial sector in the next few weeks.
Having won the backing of Vince Cable, the Liberal Democrats' Treasury spokesman, it will seek the endorsement of George Osborne, the Shadow Chancellor, to maximise the pressure on the Government. Mr Osborne has pledged to stop banks from handing out large bonuses, but Compass will press him for a much wider commitment. He is unlikely to be persuaded. He believes a High Pay Commission would mean a prices and incomes policy for the whole economy.
Would the Labour party support such a commission?
Compass showed its ability to build a campaign with a similar push for a windfall tax on the energy companies a year ago. Twenty-nine Labour MPs including Jon Cruddas, the darling of the Labour grassroots, are among the initial backers of its latest drive and more will follow. They believe the proposed commission would be a good way for Labour to speak up "for the many, not the few" and draw a sharp dividing line with the Tories.
Compass will mobilise support at the TUC's annual gathering in Liverpool and Labour Party conference in Brighton next month. Constituency Labour parties are expected to call for a "topical" debate on the issue in Brighton and could force a vote.
With local parties and members each holding 50 per cent of the conference votes, the proposal for a commission could easily be approved. Although it would not be binding on the Government, campaigners would then press for the idea to be included in Labour's general election manifesto.
Isn't the Government going to crack down on City bonuses anyway?
Perhaps. Alistair Darling, the Chancellor, said on Sunday that he would bring in legislation of that was necessary to control "systemic risk" to the banking system. Pressure on the Government to act is growing after Hector Sants, chief executive of the Financial Services Authority (FSA), was accused last week of watering down plans to curb bonuses to softer "guidelines" than the Treasury wanted. But the Tories accuse ministers of making conflicting statements on the issue and failing to match their rhetoric with firm action.
Supporters of a High Pay Commission say their case has been strengthened by the FSA's apparent reluctance to do the job the Treasury has given it.
What does business say?
Banks oppose what they fear would amount to a "pay tax" on the City of London. The British Bankers Association argues that rules on bonuses in Britain are already "more stringent" in Britain than in any other country. The Confederation of British Industry wants action to be co-ordinated internationally to prevent a flight of individuals or firms from the City if Britain acts alone. With France leading calls for action, bankers' pay could be on the agenda of the next G20 summit in Pittsburgh next month.
Business leaders fear that tight curbs on top pay would prevent British firms attracting the best talent and deter the entrepreneurs needed to help the country pull out of recession swiftly. Critics also argue that companies would get round the new rules by rewarding top earners in other ways and outsourcing the jobs of low paid workers.
However, supporters of the proposed commission dismiss such arguments as the "same old scare stories" that were peddled before the introduction of the minimum wage. Warnings that the move could cost two million jobs failed to materialise as the wage was brought it at a relatively low level.
So will the Government set up a High Pay Commission?
It looks unlikely. Some ministers may be attracted to the idea, believing it would be popular with most voters and an example of the "bold decisions" Gordon Brown must take if he is to fight back in the autumn.
But the Cabinet appears sceptical about a policy which would smack of Old Labour interventionism and a return to the discredited incomes policy which contributed to Labour's 1979 election defeat.
Ministers insist that banks need to offer good packages to attract the best talent in order to revive their fortunes – citing Stephen Hester, chief executive of the Royal Bank of Scotland, in which the state has a 70 per cent stake. But his pay package of up to £9.6m for this year fuelled the controversy.
Downing Street reacted coolly to the Compass campaign. The Prime Minister's official spokesman said: "The Government has already taken steps on low pay to tackle the question from that direction." Mr Darling is "not persuaded" by the campaign. He said: "I do think the Government has a role in trying to stop undesirable practices such as the excessive risk taking and bonus payments in the banking system, where we all stand to lose if that goes wrong. But generally, pay agreements ought to be reached by employers and employees meeting together deciding what they can afford and what we need to pay."
Is a High Pay Commission a good idea?
*It would ensure fairer rewards for all workers and combat exploitation of the lowest paid
*It could prevent a re-run of the risk-taking that contributed to the financial crisis
*The continuing "bonus culture" in financial services shows that more state intervention is needed
*It would mean a return to the failed incomes policies of the 1970s
*It would damage the City of London and make the British economy less competitive than its rivals
*It would be a bureaucratic nightmare for an independent body to interfere in the pay policy of individual companies
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