Leading Article: Thin excuses for fat cats

Share
Related Topics
ONE OF THE guiding principles of Britain's Tory governments since 1979 has been that top people should be well-rewarded. If incentives were sufficient, executives would fly high and create wealth, the argument ran. Their rewards might seem excessive and unfair to ordinary people but they, too, would benefit - in the famous phrase, wealth would 'trickle down'. We know now that this was piffle. Pay packages of pounds 500,000 a year upwards have become commonplace for company directors, yet a fifth of the population is worse off than it was 15 years ago. Far from trickling down, the money has been swilling around in the boardroom trough. The beneficiaries are well-known. Peter Wood, chief executive of Direct Line, the insurance company ( pounds 18.2m); Lord Hanson, chairman of Hanson plc ( pounds 1.3m last year); Bob Bauman, chief executive of SmithKline Beecham ( pounds 2.1m); Michael Green, chairman of Carlton Communications ( pounds 630,000); Martin Taylor, new chief executive of Barclays Bank ( pounds 737,000); Lord Young, former Tory minister and now chairman of Cable and Wireless ( pounds 863,000); Sir Ian MacLaurin, head of Tesco ( pounds 967,000). As one current case shows, even the chief executive of a quite small company can now expect at least pounds 225,000, including bonus, even though the business has plunged, in a few months, from break- even to heavy loss.

Last week, as ministers struggled to square their calls for pay restraint among public sector workers with continuing evidence of executive greed in the private sector, the Prime Minister did not even bother to trot out the old trickle down argument. We are 'a free capitalist country in which companies determine their wages', he told the Commons. Free, perhaps. But not fair.

This is best illustrated by the use of the word 'competitive'. When companies talk about being 'competitive', they usually mean screwing down wages or sacking workers or both. They must reduce labour costs, they argue, to avoid losing market share to rivals. But at boardroom level, the word, along with the argument, is stood on its head. Paying 'competitive' salaries and bonuses means paying more than your rivals. Otherwise, your top executives may defect, probably overseas. The reality is that most British executives lack the know-how, language skills or inclination to work in comparable jobs abroad and, except in America, the remuneration package is unlikely to be higher. But reality rarely intrudes.

The simple reason - and the whole secret of the top executive merry-go-round - is that company directors award pay rises to each other. The only significant check is from non-executive directors but they are usually executives of other companies who have every interest in ensuring that their equivalents are well- rewarded. Several studies have failed to find any relation whatever between top executives' pay rises and company success. In 1991-92, top companies gave their directors an average of 13 per cent extra while average profits fell by 7 per cent. Sometimes, true, executives do so badly that they get sacked. But most people would be happy to lose their jobs on the normal boardroom terms. Two years' worth of those inflated salaries is usually paid in compensation. Why should a director object when he may be next in the firing line? Then there are share options, whereby directors allow each other to buy shares cheap at a moment of their own choosing in order to sell them at a fat profit, sometimes running into millions of pounds. In this way, top executives tend to benefit disproportionately from takeover bids.

All this might be acceptable if the beneficiaries were indeed wealth creators. But those who design and make, refine and improve, market and sell a product - engineers, scientists, television programme makers - are often not those who get the biggest share profits, largest company cars and most generous severance terms. In British companies, the finance director nearly always does better than (say) the chief engineer. And in recent years this inequality between the boardroom and the professionals who really count has grown at least as much as the inequality between executives and shopfloor. This is why John Major, if he wants to run a successful capitalist country, must find ways to curtail the freedoms so widely abused in company boardrooms.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Pharmaceutical Computer System Validation Specialist

£300 - £350 Per Day: Clearwater People Solutions Ltd: Pharmaceutical Computer ...

High Level Teaching Assistant (HTLA)

£70 - £90 per day: Randstad Education Birmingham: Higher Level Teaching Assist...

Teaching Assistant

£50 - £80 per day: Randstad Education Birmingham: Randstad Education is the UK...

Senior Java Developer - API's / Webservices - XML, XSLT

£400 - £450 Per Day: Clearwater People Solutions Ltd: Our client is currently ...

Day In a Page

Read Next
 

i Editor's Letter: Take a moment to imagine you're Ed Miliband...

Oliver Duff Oliver Duff
 

Letters: No vote poses difficult questions – so why rush?

Independent Voices
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments