“Lack of transparency” is generally seen as a bad thing, but transparency has its downsides too. Serial non-executive and life peer Baroness Kingsmill sees transparency as a key contributor to the rapid rise in remuneration of executive directors in public companies. The same ambition gene that elevates the ultra competitive to the top is also an Achilles heel; they just can’t cope with the knowledge that someone is earning more than them.
It’s certainly effective, this genetic motivation. Directors of FTSE companies saw their total compensation rise by 55% in 2009/10 and a further 49% in 2010/11, despite the worst recession in living memory and pay freezes for everyone else. Income Data Services, the employment research service, has described executive remuneration as ‘gravity defying’. It’s a shame David Cameron can’t find a way to apply the same rocket fuel to grow the UK economy.
Baroness Kingsmill was speaking at ‘Business Behaving Badly’, a High Pay Centre debate to coincide with the publication of a new report: ‘Business Matters; Morals Matter’. Sandwiched between two business journalists and a senior trade unionist, the Baroness admitted she was on the panel as token apologist for the excesses of some senior executives. She was also quick to point out that we should separate ‘banking’ and ‘business’. “Bankers have done terrible things … but most business boards care,” she said.
The High Pay Centre is not alone in being unhappy with excessive pay at the top of British business and the growing pay chasm between executive directors and the rest of the organisation. Part of the Centre’s strategy is to lobby for greater equality of pay between the Board and the shop floor and to shame the worst examples of excess.
Fellow panellist Stefan Stern, former Financial Times columnist and now director of strategy at PR firm Edelman, pointed out that’s it difficult trying to ‘shame the shameless’. He’d also like to see an end to Corporate Social Responsibility departments. “Responsibility should be part of the ethos and not a department,” he said. That’s a compelling argument.
Nils Pratley, financial editor at the Guardian, highlighted the difficulty that directors face should they want to voluntarily forgo a lucrative bonus, pointing out that businesses are reluctant to allow one executive to opt out because it sends a bad message to the market the next time they need to attract the services of a new senior executive.
For most people, it’s exasperating to see the ever increasing pay packages awarded to CEOs at a time when thousands of staff are losing their jobs and the rest are starved of pay rises to help earnings keeps up with inflation.
City fund managers are also complicit, Pratley pointed out. These anonymous figures manage institutional investments in major British businesses and earn pay packages similar to the highest paid CEOs. We know what CEOs get paid because transparency requires that this information is public. Lack of transparency makes it very difficult to know exactly what fund managers get paid.
For me, it’s less an issue of what a CEO gets paid and more what they do in return for the package. With growth in short supply, most CEOs are continuing to deliver shareholder returns by cutting staff, offshoring operations to cheaper markets and, where possible, increasing prices. These are the ‘tough’ but relatively easy decisions to make. If growth is achieved by introducing compelling new products and services or engaging staff and customers better, I find it a less troubling development. But making decisions that help shore up the balance sheet in the short term at the cost of long term sustainability of the business is something else. There are also clear issues of staff morale and leadership that should be aired but don’t always get a full hearing in this debate.
Ultimately, if the people who own the business are happy with what the CEO is paid, and no laws are being broken, I’m still not convinced the rest of us have a genuine right to challenge their decisions.