Luke Hildyard writes for the Daily Mail on why right wingers ought to worry about the explosion of executive pay
Over the past 15 years, the average pay of a FTSE 100 Director has increased from about £1 million a year to closer to £5 million.
The value of the FTSE 100 index has remained flat over the same period. Today, a FTSE 100 CEO is paid about 160 times the average UK worker. In 1998, they were paid 57 times as much. The more limited data from the late 1970s suggests that the ratio of pay between a big company boss and the average UK worker was generally around 10 or 20 to 1.
On Tuesday, at the Conservative Party Conference, a panel including Tory MP and Chief Executive of the British Bankers Association, Anthony Browne will ask if Conservatives should see this as a big problem, and whether a desire to reduce top incomes goes against Conservative principles.
Some on the right are instinctively suspicious of anything that smacks of ‘class war’ or ‘the politics of envy.’ They aren’t convinced that many people are that bothered by the vast sums of money that the super-rich take home. They think that ever larger executive pay packages represent the growing demand for their skills.
For a party widely perceived to be only too willing to do the bidding of the rich and powerful, this is a bit complacent. But the most important reasons why the Tories need to tackle top pay are economic, not political.
The growth of executive pay is symbolic of a much wider trend. Over the past three decades, top managers across the economy have grabbed an ever increasing chunk of the nation’s wealth for themselves. Massive pay packages for CEOs trigger similar increases across the city, consultants, accountants and law firms… not to mention politicians senior civil servants and the BBC.
The net result is that the richest 1 per cent have increased their share of the national income from 6 per cent to 14 per cent since the late 1970s, while wage growth for ordinary workers has ground to a halt.
These low and middle income earners are the people whose spending keeps the economy going. They tend to spend what money they have, in comparison with richer households who can afford to hoard it. So it isn’t ‘the politics of envy’ to want action on executive pay – it’s the ‘politics of economic sense’.
When commentators and the business lobby frequently praise ‘wealth creators’ and warn of the dangers of driving so-called talent overseas, it betrays a rather self-serving interpretation of how wealth is created.
To the layperson, it seems implausible that the fortunes of companies with thousands of employees operating all over the world could be dictated by one or two people at the top.
Executives are dependent on the advice, skills and experience of their colleagues and the wider economic context, not to mention the healthy and educated employee and customer base; the rule of law; and the billions of pounds worth of government research spending without which, for example, the iphone and the google algorithm would not have got off the ground.
Most top companies actually recognise this. Less than 1 per cent of the Fortune Global 500 list of the world’s biggest corporations poached their CEO from an international rival. Over 80 per cent promoted from within.
This suggests that the best businesses understand that there is no innate genius that sets a tiny pool of superstar CEOs apart from the rest of us. It also shows that the risk of measures to curb executive pay driving ‘talent’ out of the UK is negligible
In fact, the reason that top pay has risen so sharply has little to do with the globalisation of a market for footloose executives. It has happened because pay is set by remuneration committees comprised of non-Executive Directors drawn from the same corporate background as those whose pay they deliberate on.
Many are still serving executives themselves and benefit from a culture of high pay and dubious bonus and incentive plans themselves. They are not interested in rocking the boat – a popular joke asks ‘what is the difference between a non-executive director and a supermarket trolley? The non-exec can hold more food and drink, but the trolley is more likely to offer a challenging opinion.’
In theory, shareholders can vote down excessive executive pay. But in practice, their votes are controlled by powerful fund managers who also benefit from a high pay culture and who are very happy to buy into the myth of a global elite of ‘wealth creators’ of which they themselves are part.
This is crony capitalism, a distortion of the free market. It ought to be anathema to Conservatives. And though the reasons for action are based on sound economics, they also make very good politics if the Tories are to show they are not just the party of the rich.
(this article originally appeared on the Daily Mail website)