INQUIRY URGES END TO BOSSES “CLOSED SHOP” ON PAY AS WIDENING GULF THREATENS TRUST IN BRITISH BUSINESS
With new figures showing increases of well over 4000% in the last 30 years, excessive high pay for the UK’s top executives is “corrosive” to the economy, to companies and to society as a whole by rewarding failure, undermining productivity and damaging trust in British business, a year-long inquiry by the High Pay Commission concludes today.
Its report, “Cheques with Balances: Why Tackling High Pay is in the National Interest”, shows stratospheric pay increases which have seen wealth flow upwards to the top 0.1% away from average workers. It sets out a 12-point plan based on transparency, accountability and fairness to halt spiralling high pay that is creating inequalities last seen in the Victorian era.
The High Pay Commission’s reforms include:
- A radical simplification of executive pay
- Putting employees on remuneration committees
- Publishing the top ten executive pay packages outside the boardroom
- Forcing companies to publish a pay ratio between the highest paid executive and the company median
- Companies to reveal total pay figure earned by the executive
- Establishing a new national body to monitor high pay.
Cheques with Balances reveals new figures showing:
- Barclays’ top executive, Bob Diamond, earns £4,365,636 – 169 times more than the average worker in Britain today – an increase of a massive 4899.4% since 1980 when the top pay in Barclays was just 13 times the average UK – at £87,323.
- The chief executive in the now part state-owned Lloyds Bank has seen his pay increase by 3141.6% to £2,572,000 over the same period – 75 times the average Lloyds employee – when in 1980 it was just 13.6 times that of the average Lloyds worker.
- Average wages in the UK today are a modest £25,900 – up from £6,474 in 1980 – just a three fold increase. Overall, ordinary workers’ share of GDP has gone down by 12% over 30 years.
Cheques with Balances also reveals how:
- Decisions to award huge pay packages are set by a “closed shop”, shrouded in highly complex detail, effectively hidden from shareholders, staff and the public.
- Stratospheric increases in pay are damaging the UK economy – distorting markets, draining talent from key sectors and rewarding failure.
- There appears to be little truth in the myth that pay must escalate to halt a talent drain in executives according to in-depth study by the High Pay Commission.
- The growing pay gap between the top 0.1% and everyone else is increasing public disillusionment, damaging trust and fuelling the view that business leaders are “in it for themselves”.
High Pay Commission chair, Deborah Hargreaves, said:
“There’s a crisis at the top of British business and it is deeply corrosive to our economy. When pay for senior executives is set behind closed doors, does not reflect company success and is fuelling massive inequality it represents a deep malaise at the very top of our society.
“The British people believe in fairness and, at a time of unparalleled austerity, one tiny section of society – the top 0.1% -continues to enjoy huge annual increases in pay awards. Everyone, including each of the main political parties, recognises there is a need to tackle top pay. That’s why we are saying there must be an end to the “closed shop” that sets top pay and that pay packages should be clear, open and published to shareholders and the public.”
Robert Talbut, Commissioner, and Chief Investment Officer of Royal London Asset Management said:
“Shareholders have, over the years had to deal with an ever increasing plethora of phantom options, long term incentive plans, and matched share options when assessing executive pay packets. This complication was introduced to link pay to performance, but this innovation has now gone too far and has not succeeded in tying the interests of the executive to shareholders.
“It is essential that we now take executive pay back to basics with a radical simplification that would see executive pay packets limited to a basic salary and just one performance element opposed to the three or four that are now common place.”
The High Pay Commission has also announced today that it is to continue its work from 2012, focusing on seeking reform and bringing greater transparency to high pay in Britain.
- The High Pay Commission was set up as an independent inquiry into high pay and boardroom pay across the public and private sectors in the UK and was established by Compass, with the support of the Joseph Rowntree Charitable Trust.
- The Commission is independent from any political party or organisation. It is non-partisan in its approach and has drawn conclusions based solely on the findings of the Commission.
- Commissioners are as follows:
Deborah Hargreaves (Chair) is the former business editor of the Guardian, a post she held from 2006 to 2010. She previously worked at the Financial Times where she was news editor and before that, financial editor. She held a variety of posts over 19 years at the FT including personal finance editor and as a foreign correspondent in Brussels and Chicago.
Brian Bailey is the director of pensions for the £8.0 billion West Midlands Metropolitan Authorities Pension Fund. Brian has also held a number of company non-executive directorships and was for many years an audit committee member of two US private equity funds. He currently holds a non-executive directorship of PIRC Limited together with the honorary treasurer role for LAPFF (Local Authorities Pension fund Forum).
Lord Richard Newby is Co-chair of the Liberal Democrat Parliamentary Treasury Committee, having been the Party’s Treasury spokesman in the Lords since 1999. He worked as Director of Corporate Affairs of Rosehaugh plc. He now advises companies and other organisations on corporate responsibility issues.
Frances O’Grady is the Deputy General Secretary of the TUC. Frances has lead responsibility for a wide range of key areas of policy development across the TUC’s work including trade union recruitment and organisation, inter-union relations and TUC services to members.
Robert Talbut is the Chief Investment Officer, for Royal London Asset Management. His career in asset management has seen him take on a wide variety of portfolio management roles of both a retail and institutional nature. Prior to RLAM Robert was the Chief Investment Officer of the ISIS Group retaining direct responsibility for a number of retail and institutional funds while helping to create a new investment team.
Professor Michael Taylor was Director of Christian Aid for twelve years from 1985-97. He was closely involved in the creation of the Centre for the Study of Global Ethics and was President of the Jubilee 2000 Debt Campaign and chairs several NGOs. He is Emeritus Professor in Social Theology at University of Birmingham.