The Guardian view on executive pay: a policy of restraint is needed

The departure of Jeff Fairburn as chief executive of Persimmon, the housebuilder, is a bittersweet victory for common sense. Mr Fairburn was originally granted a ridiculous £100m bonus but, after a public backlash, agreed to reduce that sum by 25%. A disastrous interview in which it was clear that he could not – and would not – defend his £75m payout meant it was only a matter of time before he would go. Now he has been asked to do so. It is galling that he keeps his ludicrous pay packet. In an age of insecurity, when the top 1% appear to be racing away with the nation’s wealth, it feels morally offensive.

How much bosses ought to be paid compared with their employees is an important question which politicians will soon be forced to face. From 2020, Britain’s biggest companies will be legally required to publish the gap between the salary of their chief executive and what they pay their average UK worker. History does offer some guide. In a very different age, Plato thought that the earnings of the very wealthiest should be capped at five times those of the poorest. The Labour party last year promised maximum pay ratios of 20:1 in the public sector and in companies bidding for public contracts.

In trousering £75m, Mr Fairburn earned about 3,000 times more than a worker on a median salary – wildly out of step with the spirit of the times. This was not about “outstanding performance”. His remuneration was linked to Persimmon’s share price, which zoomed upwards thanks to the government’s help-to-buy scheme. It seems obvious that executive pay ought to have been capped when state money drove the corporate growth. But Persimmon’s bosses evidently saw nothing wrong with unadulterated greed. Under the scheme, £400m was to be paid out to 150 managers. The company chairman left over this error.

Pay for chief executives at Britain’s biggest companies is rising six times faster than wages in the wider workforce. Public anger is understandable when the average FTSE 100 boss is paid 167 times as much as the median UK salary. Executive compensation often looks rigged because CEOs always seem to walk away with a big pay packet whether they fail or succeed. Renumeration boards are too frequently stuffed with insiders who hand out bumper rewards to friends.

There is a place for profit-maximising behaviour, but firms should nonetheless be responsible corporate citizens. CEOs are replaceable. Their success is not just down to individual brilliance and hard work. It is easy for successful businesspeople to forget how they got educated, where they got healthcare, how they travel to work, who protects their intellectual property, who funds their early-stage research, who regulates their markets and bails out their banks. It’s society. We pay for all that. Persimmon made the link explicit. Thomas Piketty rightly pinned much of the blame for income inequality on excessive pay rises. Studies show that Britain’s CEOs are vastly overpaid, and there would be no negative impact on the economy if their salaries were slashed. There has been a policy of pay restraint in the public sector. Would it not be a good idea to have one in the boardroom too?

Source: Read Full Article