A few months ago I appeared on a panel organised by a leading firm of pay consultants, Hewitt New Bridge. The audience, in the City, was packed with ‘human resources’ directors, pay experts and members of ‘remuneration committees’ — the directors who set pay in leading public companies — among whom there was broad acceptance that the current ‘Great Recession’ might require some kind of temporary pay restraint.
But when I suggested that remuneration committees were lazy, easily bullied by powerful chief executives (such as former Royal Bank of Scotland boss Sir Fred Goodwin) and too often cosy cartels where directors engaged in mutual back-scratching, the room erupted. The culture of large annual boardroom pay-and-bonus boosts has become so entrenched that members of the high-pay oligopoly simply don’t get it.
Instead of acting as protectors of shareholders’ interests, pay panels have become captives of the managers and slaves to globalisation. In much the same way that Britain imported subprime mortgages, securitisation and exotic debt instruments from Wall Street, so remuneration committees have adopted destabilising policies from across the Atlantic.
As British-based businesses have become more international in their recruitment, they have gradually joined the American cult of the plenipotentiary chief executive. American bosses have become ever richer in comparison with their workforces. In 1980, they earned an average of 42 times the wage of shopfloor workers. By 2007, this had risen to 344 times. Average pay among top US executives rose to $13.3 million per annum.
Such high rewards in America are regularly used by UK pay committees to justify increasingly lavish signing-on fees, salaries and bonuses. Boardroom rewards have been on the up escalator: a Guardian survey this week found that FTSE100 directors’ pay rose 10 per cent last year while their companies’ profits and market valuations slumped by almost a third.
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