While spreading £2.4 million among employees is a welcome move, gestures like this will not rein in runaway executive pay, writes Deborah Hargreaves in the Guardian
Lord Wolfson’s largesse in spreading his £2.4m bonus among the staff of Next today is a welcome move, and it would be good if others followed his lead. However, this is not a sustainable way of tackling excessive executive pay.
Lord Wolfson has said that his share award made three years ago, is now worth a lot more than he expected and so he is giving it to staff instead of keeping it for himself.
He won’t go short though, his package rose by 13% to £4.6m last year.
His move comes as pressure is building on top executives who are receiving multi-million pound packages when their own staff are seeing pay barely keeping pace with inflation.
Top company bosses received £4.8m last year which is 185 times the average salary. While they are often enjoying annual rises of more than 10% in their packages, much of the rest of the workforce has seen wages frozen.
The head of the Institute of Directors, Simon Walker, caused a stir this week when he said at a High Pay Centre debate that it was “mad” for members of boy-band One Direction to be paid £5m each last year.
But at least we can see what One Direction are doing for their money. Company bosses are often paid as much when their companies are doing badly.
In fact, Walker recognised as much; he said it was not the G20 protests or the Occupy movement that had caused the most damage to the reputation of business, but the “greed of those who demand and secure rewards for failure in far too many of our large corporations.”
Excessive share awards loosely linked to company performance have driven bosses’ pay to extraordinary heights in recent years.
However, these complex schemes are beginning to be questioned by leading shareholders. Robert Talbut, an influential shareholder, told the same debate on Monday that “encouraging people to achieve lottery pay-outs is not in the interests of business success.”
Next shares have performed extremely well over the past three years which is why Wolfson’s award is now worth more than he thought. He has decided to hand it to employees this year, but there is nothing to stop him keeping it next time round.
This is why the structure of pay for top bosses must be overhauled along with the way it is set. Share awards for performance need to be scaled back, if not abolished altogether. They are too complex and do not appear to motivate executives properly.
At the same time, we need to see employees elected to boards and remuneration committees to break up the cosy club of directors who set each others’ pay. This is the only way to turn Wolfson’s gift into more than a one-off gesture.
Deborah Hargreaves is founding director of the High Pay Centre