Excessive executive pay has negative consequences for everyone

Our pathway to economic success and higher living standards doesn’t involve lavishing more money on people who are already multimillionaires. Luke Hildyard writes for the Times.

Firstly, it is widely recognised that inequality exacerbates socio-economic problems. The UK has amongst the highest income inequality of any advanced economy. Research has found convincing evidence of a link between wider income gaps across societies and issues like physical and mental health problems, higher substance abuse, lower social mobility and worse educational outcomes.

 Secondly, there are opportunity costs of executive pay for the wider workforce. While distributions of income and wealth are not a ‘zero sum game’, it would be naïve to think that huge top pay awards have no impact on pay and living standards for low- and middle-earners. Some major UK employers spend tens of millions on two or three executives alone. This inevitably means there is less available for their lower-earning colleagues.

Some argue that because executives take decisions that affect the value of billion-pound companies, they deserve to be paid millions. But no CEO operates in a vacuum. They depend on multiple colleagues to advise and execute decisions plus business processes and infrastructure that have been built up over decades at most large corporations. It is far more common for them to be rewarded for being in the right place at the right time than for genuine enterprise. The highest-paid UK executives last year included the CEOs of arms manufacturers and oil companies, who benefitted from a massive spike in demand following the invasion of Ukraine. For the CEOs to pocket multi-million pound bonuses as if they were responsible for this success is plainly ludicrous.

Ultimately, the number of candidates capable of filling executive roles is a function of the number who are given the training, confidence and opportunity to do so. There isn’t a tiny and fixed number of people with a god-given talent for business management. In an economy with the right approach to education, skills and opportunity, CEOs refusing to work for more moderate pay would be easily replaceable. 

The pathway for economic success and higher living standards in Britain doesn’t involve lavishing more money on people who are already multi-millionaires. It means empowering the wider workforce to get a fairer share of the wealth that their labour creates.