Bosses pay: Business tells May to water down reform plans in new report

The latest missive from the Purposeful Pay Group opposes binding annual votes on executive pay and a proposal to force companies to publish pay ratios showing gap between the CEO and the rest

James Moore
Friday 25 November 2016 12:40 GMT
The trouble for our ‘Brexit means Brexit’ PM is that she needs business more than business needs her
The trouble for our ‘Brexit means Brexit’ PM is that she needs business more than business needs her (Getty)

Remember when Theresa May made her bold pledge about a Britain that works for everyone? And her promises to put workers on boards while cracking down on the increasingly unjustifiable levels of executive pay?

Jeremy Corbyn was probably spitting into his cornflakes when he heard that: “But they’d never let me get away with it!” Well, it seems “they” don't plan to let Ms May get away with it either.

The PM has already backtracked on putting workers on boards. Now the business lobbying is taking aim at the proposals to give shareholders binding annual votes on pay and forcing companies to publish pay ratios that compare how much the CEO makes compared to what the workers make.

Take the latest report by something called the “Purposeful Pay Group” which, we are told, is “a group of leading companies, investment houses, leading business schools and business consultancy firms, established by the Big Innovation Centre and supported by the Bank of England”. Crikey. So this has clout then!

The report says the group recognises the need for “change”. And so there are some modest proposals to that end. It would prefer CEOs and other senior executives to be paid their bonuses mainly in shares, rather than cash, and for them to be released over the long term. They should also be required to build up big stakes in the companies they run.

Pay structures ought to be simpler, and companies should have to demonstrate how awards are linked to performance.

So far so good, but the report then goes on to trot out the same line up of self-serving twaddle we’ve heard so many times before. That includes a call for the business community to explain things a bit better so workers and others "properly understand" that their leaders are supermen (and much more rarely women).

There’s another lecture on how companies have to attract “talent” and how the super-people at the top have an “option” when it comes to where they work. They just have to be paid gazillions, or we wouldn't be able to get them! I know what, let's pay them even more!

The fallacy of arguments like these has been much discussed. The frequency of corporate cock-ups amply demonstrates that a high proportion of top bosses are something other than super. It’s also quite rare for companies to poach bosses from other companies. The vast majority of them are hired internally, not externally. And they’re usually from the home team as regards nationality. The FTSE 100 is a more international market than most, but Brits still predominate when it comes to who’s boss.

We’ve had this debate a thousand times before and it’s rather sad that the report insists upon relying on such tired old arguments, advocating more work to “justify” blockbuster pay awards to ensure social cohesion.

The world has moved on. But this isn’t addressed to the world. It’s addressed to Theresa May. Has she moved on? I have my doubts.

The report wants to water down her demand for a binding annual vote on pay. As for the idea of forcing companies to publish pay ratios? “Pay ratios do not lend themselves to valid comparisons between companies, even within the same industry, and would likely add to misunderstanding over executive pay”. They could “fuel excessive negativity over pay, when we need great leaders to create our great companies”.

That could have come from a Government press release, and it will be heard loud and clear in Government.

Faced a stunningly bad economic outlook, Ms May has already shown that she lacks the appetite to force companies to accept workers on boards. The report gives her something to point to if she decides scrap or water down her other proposals.

The trouble for our “Brexit means Brexit” PM is that she needs business more than business needs her. She needs its leaders to be investing and hiring and doing things other than seeking out properties on the continent that might work for the new HQ.

It is for that reason that only minor reforms advocated by largely regressive reports like this one will end up being enacted.

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