If not government, who should control pay?
Kitty Usher - a brighter Treasury minister than some in that building - has rightly told the European Union that inflated City pay rates are nothing to do with the UK government, nevermind the bureaucrats in Brussels. She is right not only because private-sector pay is not inside the politicians’ remit and she is right because the state couldn’t control it if it tried - but if City pay is not a matter for ministers, who should be controlling it?
The easy answer is shareholders, but by the time they are asked to approve pay rates and bonus bases for directors the money has usually been paid and the appointment made. And shareholders are not nearly as good at voting down proposals as they are at grumbling about them.
So the harder answer is remuneration committees. Yet they have failed too. The conspiracy theory says they are stuffed with overpaid executives from other companies with a vested interest in keeping rates high; the cock-up theory is that they rubber stamp anything with no knowledge of what they should be paying.
Either way, too many companies have been allowed to pay too much to executives who fail to perform. And presumably, for every executive whose high pay is declared, there is a hierarchy of underlings who are each paid more than their worth to stop their boss’s pay looking too excessive. And when the executive’s inadequacy is exposed, insult is added to injury with an equally inflated pay-off to end the mistaken original contract.
The European Union - and the trade union supporters - has correctly identified a problem with boardroom and City pay even if it has failed to find a workable solution. Ms Usher has protected UK firms from a ridiculously unworkable regime to control pay, but those firms have a duty to find their own acceptable answer. Otherwise the EU may succeed in imposing draconian constraints.
