Mythbuster: Are huge executive pay packages really vital to UK competitiveness?

By 22.07.13PublicationsSeptember 2nd, 2020No Comments

As part of the New Economics Foundation’s ‘mythbuster’ series, Luke Hildyard debunks the myths used to justify excessive executive pay

We’re encouraged to believe that company executives are talented wealth creators, worthy of extreme pay packages which supposedly drive them to work hard to the benefit of society.

As part of the New Economics Foundation’s mythbuster series, Luke Hildyard analyses the arguments put forward to justify the shocking growth in executive pay packages over the past thirty years, finding that there is little evidence to support them:

  • the risk of executives moving overseas is greatly exaggerated – less than 1% of the world’s biggest companies have lured the CEO of an overseas rival with an increased pay package
  • there is little evidence to support the idea that there is a finite pool of irreplaceable company leaders – internally-promoted executives, nurtured by strong personal development programmes, tend to perform better than supposed superstars recruited from external competitors
  • For all the talk of ‘performance related pay’ the rapid growth in executive pay packages – driven by huge increases in bonuses and incentive plans – has brought about little improvement in company performance

The fact that these myths have been allowed to take hold has greatly exacerbated levels of socially-divisive inequality in the UK, while the increased share of the national income captured by the richest 0.1% diverts wealth from low and middle-income households.

(This paper was published as part of the New Economics Foundation mythbuster series. To see the full series, visit the NEF website)

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