Why CEOs are unlike Premier League footballers

By 11.04.24BlogUncategorizedApril 22nd, 2024No Comments

Highly-paid business leaders frequently compare themselves to superstars in sports or entertainment, but for a host of reasons, the analogy doesn’t really work. Blog from HPC Executive Director Luke Hildyard

Yesterday’s edition of the excellent ‘Off to Lunch’ newsletter from Business Leader focuses on top pay, and includes an unattributed aside from a UK executive asking why people are so concerned about executive pay but not that of Premier League footballers.

This challenge gets raised a lot so it’s worth examining why the comparison doesn’t quite work

  1. There just aren’t that many footballers (or other millionaire sports stars, actors or musicians). Thomas Piketty’s “Capital in the 21st Century” estimated that around 70% of the richest 1% of the US population are what he described as “super managers” business executives or other high earning white collar professionals. If you are concerned about societal inequality or want to raise living standards through the re-distribution of income, this would be the group to focus on. Footballers and entertainers have a negligible impact.
  2. Comparatively few people work in football or other sports. Some major employers spend tens of millions of pounds on their CEO and other senior managers at a cost equivalent to a meaningful payrise for thousands of their employees. This understandably prompts the question of whether high CEO pay comes at a cost to workers. No doubt there are low-earning workers at football clubs but there isn’t the link between high pay and low pay on the same kind of scale.
  3. Many of the UK’s biggest companies benefit from public money one way or another, in a way that football clubs don’t. Think the implicit value of bail-out guarantees to the banking industry; the client relationship with defence firms; in-work benefits effectively subsidising low-paying industries like retail, leisure and hospitality by ensuring their staff are able to meet the costs of housing, heating and food and don’t turn up to work unwell, or out of their mind with money worries. It’s not especially surprising or unhealthy that taxpayers struggling to cover their own cost of living might be irked by multi-million pound pay outs to executives in these businesses.
  4. Football is close to a genuine meritocracy. The best-paid players are largely the most talented or hard working, and background or connections doesn’t really come into it. A study by the Sutton Trust found that 48% of UK-educated FTSE 100 CEOs were privately educated (compared to around 7% of the population), which is a useful if imperfect proxy for an advantaged background. There’s only one founder CEO in the FTSE 100, the remainder were promoted or appointed to their current position through processes which inevitably contain an element of subjectivity.
  5. There’s a clear link between footballers’ performance and their pay. Manchester City won the treble last season because their players were the best. While the leadership of a major corporation also undoubtedly matters, the extent to which the success of organisations with thousands of employees and long-established operations, processes and brand capital can be attributed to individual executives is more questionable. Four of the five largest CEO pay increases awarded by FTSE 100 Companies last year, were made by firms in the oil and gas or arms manufacturing industries which benefitted from rising prices and surging demand following Russia’s invasion of Ukraine. It’s not serious to suggest the performance of these companies was driven by the leadership of the CEOs in the same way that Man City’s success was contingent on Erling Haaland’s 52 goals (indeed one of the executives in question was subsequently fired for improper conduct while another admitted on national TV that his pay was impossible to justify).
  6. The premise of the comparison is slightly flawed. There is considerable discomfort with pay levels in football. They are skewed by unsavoury state actors and billionaire megalomaniacs subsidising football clubs as an exercise in ‘sportswashing’ or a hobby/ego trip. Very few clubs operate as ordinary self-sustaining businesses, while the costs that largely result from players’ pay have made it increasingly unaffordable to ordinary fans and uncompetitive. Both the football authorities and latterly the UK Government through the forthcoming football regulator have made effort, to address these issues, with rules that effectively represent curbs on footballers’ pay. While many fans undoubtedly want their own clubs to spend more money on superstar players, there’s general support for these efforts to regulate the game more actively, which is why they are happening.

A more legitimate grievance for the CEOs of listed companies would be the relative lack of scrutiny given to top pay at privately-owned businesses or in other leading professions.

Listed firms have to provide detailed disclosures of what their CEOs are paid and how this compares to their wider employee population. What these companies spend on high earners and the value they generate in return is obviously of interest to investors, but also to other stakeholders including employees, customers and indeed anyone who’s concerned about societal inequality (the relationship between inequality and a host of socio-economic problems is well-established).

This applies to non-listed firms just as much as those that are publicly traded. It would therefore make sense to have a set of requirements for reporting on pay common to all major employers, regardless of their ownership structure.