Margareta Pagano: Is narcissism the new capitalism?

Sir Martin Sorrell's pompous defence of his £4.2m pay is almost reason enough to ban share incentives

It's strange that no one bats an eyelid when Lady Gaga makes millions from singing or Wayne Rooney earns £250,000 a week for his footballing prowess.

Nor are there complaints that Downton Abbey will make Lord Fellowes a multi-millionaire or that lawyers such as Fiona Shackleton make millions from the divorces of high-profile couples.

Yet when the news breaks that the bosses of FTSE 100 companies, who provide jobs for millions and make products that we consume every day, gave themselves a 49 per cent pay increase last year, the nation goes into a collective shudder of moral outrage. The press rages about fat cats, union officials are hauled out to protest against injustice and even the Prime Minister calls in from Australia to opine.

What is it about high corporate pay that so enrages us? We discovered last week, through an Incomes Data Services survey, that FTSE 100 chiefs earned an average of £3.8m last year. Some of the highest paid, such as Sir Martin Sorrell of the advertising giant WPP, received £4.2m, while Xstrata's Mick Davis took home £18m. Both have been highly successful, delivering healthy returns to their shareholders, and deserve generous pay. But are they worth a 40 per cent – after stripping out inflation – increase year on year? Investors don't appear to worry that they haven't delivered the same rise to them, so should we?

Clearly we do. That's why it's important for us to ask why Lady Gaga's millions are acceptable but why we don't like businessmen and women – Dame Marjorie Scardino of Pearson made £8m – earning so much if we are to have a credible debate about executive pay. Is it because we appreciate that Gaga and Rooney have unique talents, skills we can't replicate? By contrast, are corporate bosses greedy and not worth the money because we don't see or understand what it is they do? Or do we think that running billion-pound global companies with thousands of employees around the world is easy-peasy? That we could all do it, given the chance?

I think that's part of the answer but there's something more subtle going on. And it's this: we don't trust them, particularly the way they construct complex pay packages that no one understands – there's basic pay, fattened by cash bonuses, and then all manner of short and long-term share incentives.

It is the swelling of these incentives that has pushed up pay – anything called Ltips or Leaps should set the alarm bells ringing. In Sir Martin's case, he was granted £50m worth of shares in 2005, which are now coming into force.

Another reason why there is so much distrust of executives – just as with the bankers – is that they are not risking their own skins, and nor do they put their own skins in the game like Gaga or Rooney. Indeed, many are not worth these pay levels but pay is pushed by the closed shop of remuneration committees and pay consultants using benchmarking criteria, and the methodology used is always upwards.

Executives defend themselves by claiming that they operate in a competitive, international free market for talent. That's patently not true. It's a distorted market fed by this closed shop. It's become too easy for directors to make fortunes because of these incentives, which are the corporate equivalent of MPs' expenses and bankers' bonuses.

Most of these incentives schemes are based on dodgy and complex measurements which, by and large, most shareholders don't understand – and, so long as the shares have been going up, they don't care. All this is giving rise to a rather uncomfortable narcissism which is infecting the corporate world and giving capitalism a bad name.

That's why it was disappointing that Sir Martin sounded so petulant when he was interviewed on the radio last week to comment on his bumper package. It was a great chance for him to explain to the public, and to show that he really was "worth it".

Instead, he came across as pompous by claiming his base £1m salary was "very low" – not the sort of remark to make when for most people real incomes are declining. What I wanted to hear was how a supermarket trolley group has become a $16bn marketing colossus creating thousands of jobs. Instead, he wouldn't even answer whether he would do the job for less; how feeble.

So what's to be done? Government can't intervene directly, however much it might wish to. Nor should it as that would be too dirigiste. These are publicly listed companies owned by institutional investors that we, through our pension schemes, own. Ultimately, the power is in our hands, but how are we to protest? Pull out of our pensions?

There's a much better idea, and it comes from Sir Nigel Rudd, the serial chairman; he would like to stop all share schemes, thus encouraging executives to buy shares at market price with their own money. That would be honest, transparent and put the skin back in the game. And it's achievable with a few tweaks to corporate governance and company law.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas