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Excessive executive pay a threat to business, say Institute of Directors members

Business leaders from across the UK say excessive pay for those at the top is the biggest threat to the reputation of business

Excessively high pay for big business leaders is the biggest threat to public trust in business, according to a survey of members of the Institute of Directors carried out on behalf of the High Pay Centre think-tank.

52 per cent of respondents identified ‘anger over senior levels of executive pay’ as a threat to public trust in business, ahead of 51 per cent identifying product mis-selling or unsympathetic portrayal of business in the media. 48% either agreed or strongly agreed that falling trust in business was an important threat to the success of their own company, while 26 per cent did not think it was important.

The survey findings will increase the pressure on political parties to include further measures to contain top pay in their general election manifestos. The Coalition Government gave shareholders the power to veto proposed executive pay packages in 2013, but top pay has continued to prove controversial. Last week HSBC revealed that CEO Stuart Gulliver was awarded nearly £8 million in 2014, while over 300 other senior bankers were paid at least €1 million. Reports suggest that Lloyds CEO Antonio Horta Osorio was paid around £10 million last year, even though a substantial proportion of the bank remains publicly-owned.

The survey from the IoD and the High Pay Centre also found that 54 per cent of IoD members thought that building a successful company was the most important motivation for a business executive, compared to just 13 per cent who said they were motivated by financial reward.

Deborah Hargreaves, Director of the High Pay Centre said: These findings destroy the argument that criticism of excessive executive pay is somehow ‘anti-business.’ Outside the boardrooms of big corporations, ordinary small and medium-sized business owners are as appalled by the culture of top pay as anybody else.

When big business leaders rake in seven or eight figure pay packages every year, including massive bonuses regardless of company performance, we are clearly seeing a corporate governance failure rather than a fair and functional free market. Ordinary workers, customers and wider society, not to mention shareholders, are being ripped off.

Simon Walker, Director General of the Institute of Directors said: Performance-related pay can be a key driver of success. Companies of all sizes have policies that reward individual contributions through mechanisms such as commission and bonuses. When it comes to senior executives there are higher standards, and rightly so. Pay must be sufficiently long-term to encourage them to plan five, ten or twenty years ahead.

“However, in some corners of corporate Britain pay for top executives has become so divided from performance that it cannot be justified. Runaway pay packages, golden hellos, and inflammatory bonuses are running the reputation of business into the ground. Large companies need to look closely at the role excessive pay is playing in fuelling an anti-business backlash from the public and some politicians. IoD members are justifiably concerned at the impact this is having on their own small and medium-sized companies.

“As remuneration committees begin to consider this year’s pay deals, I would urge them to take note of the shareholder backlash we saw last year. There is a responsibility on the part of directors and boards to restore the link between long-term performance, accountability, shareholder return and executive rewards. Groups like the IoD and High Pay Centre will continue to keep on the pressure until companies take note.”

Notes to editors

Contact: Luke Hildyard, Deputy Director, High Pay Centre - T: 07859 015543 E: luke.hildyard@highpaycentre.org

 

Download report

Posted on 1 March 2015

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