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Posts Tagged ‘Pay’

How To (And How To Not) Call Time on Excessive Pay.

Monday, January 16th, 2017

The city of Portland in America, which has recently passed a law raising taxes for businesses whose CEO-to-workers pay ratio is over 100-1.

If you watched the news last week you can’t have helped but have noticed the furore that the Leader of the Labour Party kicked off when he suggested that there should be some kind of cap on high earnings.

Excessive pay is more than an economic problem. At a time where salaries and job prospects for those on the lower end of the scale are getting more precarious by the day it becomes a moral problem as well. I agree with Corbyn insofar as he says that inequality, especially income inequality, is harming our society and our public services. It’s no secret that levels of pay at the top of business and industry have skyrocketed far beyond anything resembling sanity. The High Pay Centre, an independent think-tank, estimate that FTSE 100 CEOs are now paid 130 times more than the median pay of their staff, compared to 45 times more two decades ago.

Where I disagree with Corbyn is on what should be done about it. I am, and continue to be, against a hard cap on earnings. It’s a crude and blunt instrument, the financial equivalent of performing heart surgery with a sledgehammer. It also runs the risk of incentivising behaviour such as hiding pay through share options and payments-in-kind.

I’ve always made it clear that I have no issue with people reaping the rewards if they work hard and are successful. What has happened in recent years is that CEOs and executives are receiving colossal pay packets for just getting by or, in some cases, even failing completely. The example I highlighted the last time I wrote about this subject was Bob Dudley, the chief executive of BP, who received a 20% pay rise last year despite the company recording the biggest operating loss in its history under his watch. When we also start seeing massive pay ratios between workers and executives the question has to be asked if their performances could ever justify it. You could potentially make an argument that a top notch chief executive is, say, responsible for 20 times more than an average employee and therefore deserves to be paid 20 times more, but can you make the same argument for 50, 100, 150 times more?

So if I think something needs to be done but I’m against a hard cap, then where does that leave me?

Luckily we already have a way to move money around society to benefit us all, a way that has been proven to work for centuries across the world. It’s called the tax system. That’s why I’m interested in an experiment conducted by the city of Portland in America, which is introducing tax increases of 10% and 25% for business whose CEOs are paid more than 100 and 250 times more than the median employee respectively. This “inequality tax” would help pay for basic public services in the city, such as housing and police/firefighter salaries. If Portland can pull off a long-term shift in cultural change towards executive pay while raising money for public services at the same time, then why can’t they do the same thing here in the UK? Its questions like this that I’ll be asking the Prime Minister over the next year.

Inequality is not inevitable, but it will take serious action to turn around a ship that has been allowed to get out of control for far too long. The fightback must start here. A fair society is a stronger society, and I will do everything in my power in Tameside Council and in the Greater Manchester Pension Fund to make it happen.

Calling Time on Excessive Pay

Friday, September 23rd, 2016

3311There were a couple of pieces of news at the end of last week that should give anybody who is concerned about fairness and equality in Britain pause for thought. Firstly, figures from the Office of National Statistics show that cash bonuses from UK employers have reached £44.3 billion, surpassing their pre-crisis peak. At the same time, wage growth has slowed down from 2.5% to 2.3% in the last quarter, which includes the month following the vote on our European Union membership. It’s for these reasons that I welcome the announcement that the Business, Innovation and Skills Committee are launching an enquiry into corporate governance in Britain, with a focus on corporate governance and levels of executive pay.

Before I start, let me make one thing perfectly clear, I have no issue with people making good amounts of money if they deserve it. Where it becomes an issue is if that money bears no relation to their performance in the job, or if the money that they earn is wildly more than could ever be justified. Maybe Sir Martin Sorrell has done a good job as Chief Executive at WPP, but can you really say that his work is worth £70 million a year? Does the Chief Executive of BP, Bob Dudley, really merit a 20% pay rise when the company recorded the biggest operating loss in its history under his watch? Extraordinary bonuses and pay should be a reward for extraordinary performance. These days they seem to be handed out for run-of-the-mill management and even, in some cases, for outright failure.

It’s not like this is a new issue either. Some readers of this blog who are a bit older than me may remember the controversy when Dr Richard Beeching received the then-princely sum of £24,000 a year (£14,000 a year more than the then-Prime Minister Harold Macmillan) to dismantle Britain’s railway network, the negative consequences of which are still being felt today. In recent decades, the usual suspects in government and the media have hounded anybody who dares voice their concerns about excessive pay as “anti-business” or engaging in “the politics of envy”. This doesn’t change the fact that we are reaching a point where re-evaluating and resetting our attitude to excessive pay is not only desirable, but necessary. Increasingly there are signs that even the business world itself is beginning to tire of massive, unjustifiable salary packets and bonuses. Shareholder revolts against executive pay rises are becoming regular occurances, with bosses at companies as diverse as estate agents Foxtons to betting company Paddy Power Betfair feeling the pressure. If the government committed itself to regulating executive pay in a way that still allowed for some flexibility in terms of attracting the best talent and rewarding the best performances, I believe they would receive more support than you’d expect.

If you’re not convinced by the moral argument, then ask yourself these questions instead. Would you prefer tens of millions being spent to invest in and expand a business, or would you prefer to see it disappear into a CEOs back pocket instead? Is it really healthy for our society and economy that a small amount of people at FTSE 100 companies can take home pay packets that are 123 times higher than what the average worker here in Tameside can expect to earn? Is it re_89367940_thinkstockphotos-470808506ally a good sign that pay for a director has increased by 47% since 2010 while workers received only a 7% increase over the same period? For these reasons and many more, I shall be watching the deliberations of the Business, Investment and Skills enquiry, and our new Prime Minister’s response to it, with great interest. Mrs May has said that she wants everybody to share in the country’s wealth. It won’t be long at all before she’ll need to start matching words with action.

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