By 5pm today (6 January), a FTSE CEO will be paid more within three working days of 2020 than an average employee takes home in a year. Among those expressing disquiet about this news is the Institute of Directors.
That might look a trifle counter intuitive. Its membership is, after all, made up of company directors, most of whom are not averse to being well remunerated. But if you look at its reasoning, it quickly becomes clear that its members have as much cause as anyone to be irked by the absurd packages handed out to the gilded elite at the top of British business.
First off, most of them run small or medium-sized enterprises. They will typically have risked their own money, up to and including their own homes, to get off the ground.
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You can therefore see how it might rankle that a mediocre CEO who makes 10 or 20 times what they do by dint of climbing the greasy poll. Even more so if, as is usually the case, they get paid regardless of how well the company does. It must be all the more galling still if the company they run treats its customers like their banks, insurers, and utilities treat them. In other words, like trash.
As you might imagine, IoD members tend to take a close interest in the reputation business has in society. It hurts them if the public puts them and their businesses into the same bracket as corporate fat cats, as they are often wont to do. It makes it hard to get heard. It leads to people shrugging their shoulders when prime ministers say things like “f**k business”.
“Companies don’t exist in a vacuum, and they should consider their pay decisions in the light of employees, customers and their place in society,” the IoD opined. Well, yes, quite. But FTSE CEOs and the people who sit on remuneration committees that set their pay still appear to think that they live in one.
Their responses to criticisms of the pay packages have barely changed in the more than two decades I’ve spent covering them. They defend themselves by saying there’s a global market for CEOs, talent is rare, we need to incentivise performance, they’re super heroes, you’re missing the point etc.
These statements took less than five minutes to demolish then and the same is true now. Nothing they claim is correct.
Big companies appear to approach this debate by sticking on a pair of noise cancelling headphones, and then dialling up a playlist featuring Slayer, Bolt Thrower and Napalm Death when their opponents have the floor. Actually, given the backgrounds of the people who we’re talking about it’s more likely to be Wagner. But you get my drift. They turn the volume up to 11 even when the opposition comes from the IoD or the Chartered Institute of Personnel & Development, much less the likes of the TUC or the High Pay Centre.
And why? Because it works. They’re still getting paid after all. It doesn’t hurt that ministers have been known to call upon arguments like the ones they use too. More recently politicians have wagged their fingers a bit because of the mood of the electorate, but the net effect is the same.
Sure, reporting requirements have been beefed up a bit. Remuneration committees, which often feature former CEOs, are having to do more to justify the nonsensical decisions they take. The poor rubes tasked with writing the self-justificatory crap you find in annual reports are being asked to get a bit more creative than usual, to earn their money in a way that the CEOs they deify don’t.
It’s worth noting that high pay packages are also detrimental to shareholders, whose money funds them. There’s no evidence that they result in improved economic or corporate performance. The reverse is true if packages incentivise executives to focus on the wrong things, as they often do.
Yet pay rebellions are still relatively rare. Too many big institutional investors, who make a pretty penny for managing our savings, can’t be bothered to vote against packages that are actively detrimental to their clients’ interests.
It’s time to focus some fire upon them.
