Of course the chief executive is paid more!
It would take the worker on minimum wage 226 years to earn the annual pay of a FTSE 100 chief executive, says the think-tank demanding a High Pay Commission. Actually, the average workers on minimum wage wouldn’t become a CEO if they had 226 years to try.
The highly-publicised proposal from Compass, an admittedly left-leaning lobby group, thinks we should have a commission monitoring top pay in the way the Low Pay Commission sets minimum wages. It wants the government to set a maximum ratio between top and bottom earnings in an organisation.
Compass has assembled “100 leading progressive figures from the centre left, civic societies and all corners of the UK” to call for curbs on high pay to produce a “fairer, more stable and sustainable economy”. TUC general-secretary Brendan Barber and Liberal MP Vince Cable are the most notable of the 100.
But if they have identified the problem – bankers whose remuneration was not justified by returns or risk certainly got us into this mess – the proposed solution lacks any fairness. Nevermind that FTSE 100 chief executives are often the victims of the bankers, there is no natural formula for the ratio of maximum and minimum pay.
It may be a rough rule of thumb that department heads earns 33 or 50 per cent more than the people under them and the same ratio less than their own superiors – but only very very roughly. There are flat organisations and hierarchies that are a sharp pyramid: remove a tiers of management and suddenly the person above you may be on twice your pay.
The only rule is that pay tends to rise as you climb the ladder – but even then there are exceptions, such as super salesmen who earn more than the sales director or TV stars paid more than their BBC bosses.
If a chief executive is paid 226-time as much as the most junior employee it may be because they are that much more experienced or that much more productive. The reason the employee at the bottom is paid less is because they are less good – and in market economy terms, it is hard to find good CEOs and easy to find unskilled workers.
It does not require the law to say whether top-to-bottom ratio should be 226-times or 113-times or 50-times. Even though chancellor Alistair Darling is threatening legislation on bankers’ pay, his thought on the think-tank’s thoughts was to state that it is employers and employees who should decide pay.
Government has much better things to do.
