Outlook: Fat cat pay

IF THERE is one thing even more guaranteed than a ban on fox hunting to please the neglected grass roots of Old Labour it would be a crack down on "fat cat" pay. On cue, Stephen Byers, Secretary of State for Trade and Industry, has announced that utility regulators will be obliged in the forthcoming utilities bill to penalise managements that pay themselves too much. Anyone would think Mr Byers was after John Prescott's job, the way he keeps playing to the left.

A way will be found of linking pay directly to standards of service, Mr Byers is quoted as saying. One such method might be more onerous price caps for companies that are seen both to be paying their executives too much and delivering poor quality of service.

Presumably Mr Byers' remarks are largely political rhetoric, for it is hard to know how in practice such a link might be made. Some form of definition of "excessive pay" would have to be advanced, as would a defining set of circumstances for poor quality of service.

Regulators would be very reluctant indeed to adjudicate in an area they at present regard as beyond their brief. It is questionable, in any case, that regulators and ministers would have any legal right to interfere as proposed. As things stand, directors of PLCs are answerable for how much they pay themselves not to parliament or government, but to shareholders, the owners of the business.

The problem Mr Byers implicitly identifies is that in the case of monopoly utilities, shareholders have no direct interest in quality of service, as they obviously do in companies that operate in fully competitive areas of the market - rather the reverse. The more a company exploits its captive customers, the more profit there is for shareholders, subject only to the nuclear sanction that the licence might be revoked if things really begin to slide. Ergo, if pay is linked to financial, rather than to service performance, as it invariably is, then executives have a positive incentive to crunch the customer.

No right-thinking person would quarrel too much with this analysis. Executive pay in the utilities has risen since privatisation by far more than can reasonably be justified either by the improvement in service customers have received, which in many instances is marginal, or by the admittedly rather greater gains that have been made in efficiency.

In a fully competitive industry, many of these managements would by now have failed. Their share prices would have collapsed and they would be out of a job. Instead they continue to enjoy handsome salaries and fringe benefits, further inflated by share option and long term incentive plans. In some respects, then, Mr Byers is right to believe the demands of the left can be reconciled with the rigours of free market thinking. Finding a legitimate way of doing it is another thing entirely.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future