Beware the backlash of high pay
The envy of directors’ pay packets is matched only by the directors’ enthusiasm to increase their remuneration. In the year to June, FTSE 100 chief executives’ total earnings rose by an average 16.1 per cent to £3.17m, doubling their pay over five years. It is not surprising the poorer public targets their leaders as fat-cats.
Calling for caps on executive pay is ridiculous, of course – and unnecessary when the chancellor can adjust the tax regime to take a greater share on the capital gains created by options.
It is right that chief executives are the best paid people in business but it is still right for others to query – and boards to defend – the differentials. They not only receive high pay but high pay rises.
And the latest IDS data shows how big rises cascade down from big jobs to small. FTSE 100 finance directors’ earnings rose faster than their bosses’ at 19.8 per cent to £1.6m; earnings of FTSE 250 companies’ chef executives jumped 27.2 per cent to £1.43m.
The argument that top companies must pay international rates evaporates at smaller firms whose executives would never go abroad. But while top companies pay good executives well to stop them going into private equity or overseas, poorer rivals increase the pay of their second-rate bosses. Bonuses devised to reward spectacular performance become standard in time.
High pay is something to aspire to. But beware the backlash – especially when profits don’t keep pace with pay. Tenure in the boardroom is getting shorter and the price of high pay can be attacks from shareholders as well as trade unions and chancellors.
