Thanks to the High Pay Commission, no one can now deny that Britain has a problem with executive pay. The body’s final report was published today and it contains some remarkable data. In the case of Barclays, for instance, top pay is now 75 times that of the average worker, compared to 14.5 in 1979 (see table below). In the last 30 years, the lead executive’s pay in Barclays has risen by 4,889.4 per cent – from £87,323 to an extraordinary £4,365, 636, while average pay has risen from £6,474 to just £25,900. The commission argues persuasively that excessive pay at the top has increased inequality, damaged trust in business, distorted the market and created instability.
So, to quote Lenin, what is to be done? The body makes 12 recommendations to tackle high pay, including employee representation on remuneration committees, publishing the top 10 executive pay packages outside the boardroom, forcing companies to publish a pay ratio between the highest paid executive and the company median, and establishing a new permanent body to monitor high pay.
The initial response from the government is encouraging. Vince Cable, who launched a consultation into the issue in September, said:
Many of the options we are consulting on are reflected in the High Pay Commission’s final report and we welcome their contribution to this important debate. The government will announce next steps early next year. In the last decade we have seen extreme increases in top executive pay which appear to be completely unrelated to the performance of companies. They are therefore acting against the interests of shareholders and consumers.
There is widespread consensus, not just among the public but in the business community, that this is unacceptable and is undermining the credibility of our markets-based system.
What I’m working towards is responsible capitalism where rewards are properly aligned with performance.
You don’t have to be a Cuban communist, as corporate headhunter Dr Heather McGregor absurdly claimed on the Today programme this morning, to believe this is a problem. Should the government fail to act, Britain will become an even more unequal society. As the shocking graph below shows, based on current trends, the top 0.1 per cent will take home 14 per cent of national income by 2035, a level of inequality not seen since Victorian times.
We know from The Spirit Level that the most unequal countries do worse on almost every quality of life indicator. They suffer from higher levels of violence, mental illness, obesity and teenage pregnancy, and lower levels of trust, child well-being and happiness. If Britain is to avoid even greater social unrest, the government must call time on the era of runaway rewards.
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