While most workers endure below-inflation pay rises or no pay rise at all, it’s business as usual in the boardroom. Income Data Services, which crunched the numbers, found that the average FTSE 100 executive director received a 49 per cent rise in the last financial year to bring their total remuneration to £2.7m. Over the same period, chief executive pay rose by 43.5 per cent to £3.8m. Conversely, average pay, excluding bonus payments, has risen by just 1.8 per cent in the last year, well below inflation, which stands at 5.2 per cent.
At a time when company share prices and profits have fallen, what explains such extravagant rewards? Pay is set by remuneration committees, who are supposedly bound to guard the shareholder interest. But in practice the committees are dominated by a closed circle of former managers, who can ignore shareholder votes. As Deborah Hargreaves, chair of the High Pay Commission, noted on the Today programme this morning: “remuneration committees on companies are often made up of other executives from other companies with an interest in keeping pay high.”
So, to quote Lenin, what is to be done? Both the coalition and Labour have addressed the subject in recent months, a break with the New Labour era when soaring executive pay was viewed as an immutable law of gravity. Vince Cable, for instance, has promised to force remuneration committees to explain in annual company reports why pay is so out of line with performance, and to give shareholders a legal binding right to block excessive pay. Meanwhile, Ed Miliband has focused on the need to diversify membership of remuneration committees by ensuring that they include at least one employee.
But such long-term promises won’t satisfy the populist demand to curb excessive pay. For now, the truth is that we’re all in it together but some of us are more in it than others.