The High Pay Commission set up by Compass,which has reported today today, offers a valuable service in providing detailed evidence of runaway pay packages at the top, headed by Barclays’ Bob Diamond with his £6 million a year over 3 years (£115,384 per week), the new ugly face of capitalism. But as so often with Compass initiatives, it does not adequately structure the problem and hence its solutions fall well short of what is needed. The report proposes:
- greater transparency in publishing the top ten executive pay packages outside the boardroom – how effective will that be?;
- putting employees on remuneration committees — how many and with what powers?
- making companies reveal the pay ratio between top pay and the company median — embarrassment is a feeble instrument;
- making firms reveal total boardroom pay — again a fairly innocuous requirement.
Will all this work in drastically reducing unmerited top pay? No. But other measures could.
The problem to be addressed is that the two most powerful human motivators are greed and fear. These are both highlighted in market pay under capitalism – greed to push to the maximum what one can extract from the system and fear that if one pushes too far one could make a thumping loss. Both these constraints have been circumvented at the top end of the pay spectrum.
There is no actual maximum because there are no limiting conditions. Bonuses are paid almost automatically, incentive schemes can be multiplied one on top of another, pension top-ups are another device to expand today’s pay packet, and ‘performance-related pay’ is granted irrespective of performance even when the share price has dived. And fear of going to excess and losing it all has been removed by getting your chums in related companies to act as your remuneration committee, on the unspoken understanding that if they do well (extremely well) by you, you’ll do the same for them. The system is utterly corrupt.
The real and proper answer to this problem is to set up an Enterprise Council in every major company (say, with more than 200 employees), composed of representatives of all the main pay grades from top to bottom, and require it to meet at least annually. At that meeting the state of the company’s order book and accounts would be examined and the requirements for depreciation, investment, maintenance and all other essential purposes explained and discussed.
The residual sum available for pay increases would then be explored, and representatives would make their own bids and give their views on each others’ bids, until at least a broad consensus was reached. That would not only constrain excessive top pay more effectively, it would also begin to generate the framework that a company is not the personal creation of the chairman, chief executive or board, but a shared enterprise of all the valued individuals within it.