Published: 28 Oct 2011
Last Updated: 04 Jan 2012
Executive pay: it’s a touchy issue at the best of times, but with inflation at 5.2% and the majority of us unable to scrape together enough cash to fill up the car, new figures from Incomes Data Services are likely to be particularly contentious. Because, according to a report released this morning, the directors of a FTSE 100 companies saw their incomes rise by 50% over the past year, with the average pay packet now standing just short of £2.7m. Nice work, if you can get it – but don’t expect the hoi polloi to be impressed…
The report suggested that while rises in directors’ base salaries were actually pretty much in line with the rest of us (3.2%, compared to 2.6% for the average private sector worker), bonus payments rocketed by 23%, from £737,000 in 2010, to £906,000 this year. Chief executives weren’t quite so well catered for: their salaries rose by a mere 43%. Makes the heart bleed, doesn’t it? (Although, to be fair to directors, post-crash in 2009, their incomes weren’t anything like what they are now. So it’s all relative).
By now, everyone’s familiar with the arguments in favour of ‘competitive’ executive salaries: £906,000 is the price you pay to get top talent – and after all, in times like this, businesses need the best of the best to steer them through the economic storm. But there’s also a risk that by having such enormous pay rises, directors emphasise the fact that they live in a different world from the rest of us. Consider, for example an interview with WPP founder/boss Sir Martin Sorrell on this morning’s Today programme. ‘[I have] a very low base pay,’ he said. Actually, pointed out the reporter, it’s £1.5m. Low, if you’re a Russian oil billionaire, perhaps…
Deborah Hargreaves, chair of the High Pay Commission, pointed out that pay increases like this are ‘hard to justify’. Part of her point was that with share options, bonus schemes and other incentives, pay packages are too complex: ‘Executives don’t even understand it themselves.’
Now of course, denying companies the right to pay their executives the going rate in a free market stinks of the kind of bureaucracy David Cameron was criticising only this morning. But by alienating the public, companies risk doing themselves serious reputational damage. More debate is needed, clearly. As Hargreaves put it, ‘We have got a closed shop here and someone needs to break it open.’
The report suggested that while rises in directors’ base salaries were actually pretty much in line with the rest of us (3.2%, compared to 2.6% for the average private sector worker), bonus payments rocketed by 23%, from £737,000 in 2010, to £906,000 this year. Chief executives weren’t quite so well catered for: their salaries rose by a mere 43%. Makes the heart bleed, doesn’t it? (Although, to be fair to directors, post-crash in 2009, their incomes weren’t anything like what they are now. So it’s all relative).
By now, everyone’s familiar with the arguments in favour of ‘competitive’ executive salaries: £906,000 is the price you pay to get top talent – and after all, in times like this, businesses need the best of the best to steer them through the economic storm. But there’s also a risk that by having such enormous pay rises, directors emphasise the fact that they live in a different world from the rest of us. Consider, for example an interview with WPP founder/boss Sir Martin Sorrell on this morning’s Today programme. ‘[I have] a very low base pay,’ he said. Actually, pointed out the reporter, it’s £1.5m. Low, if you’re a Russian oil billionaire, perhaps…
Deborah Hargreaves, chair of the High Pay Commission, pointed out that pay increases like this are ‘hard to justify’. Part of her point was that with share options, bonus schemes and other incentives, pay packages are too complex: ‘Executives don’t even understand it themselves.’
Now of course, denying companies the right to pay their executives the going rate in a free market stinks of the kind of bureaucracy David Cameron was criticising only this morning. But by alienating the public, companies risk doing themselves serious reputational damage. More debate is needed, clearly. As Hargreaves put it, ‘We have got a closed shop here and someone needs to break it open.’
