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On top pay and a bucket of warm spit in Birmingham

Vince Cable rightly castigates top pay excesses – and to give him credit, no-one else in this government of millionaires is doing so – but the solutions he put forward yesterday to the LibDem conference are worth little more than a bucket of warm spit. Simplifying complex executive remuneration schemes is not going to stop FTSE-100 chief executives sleeping soundly who now take home on average £4.2 million a year (or to bring it home what means, it’s £80,770 a week). Nor are they going to sweat about ‘strengthening the link between bonuses and performance’ when bonuses have been turned into semi-guaranteed payments where managers seldom get less than 80% of the maximum. Nor does performance-related pay mean a fig when chief executive pay over the last dozen years has quadrupled, yet the stock exchange index is no higher than it was at the start of this period.

All Cable’s proposed fiddling with the top pay system, which the beneficiaries have arrogated to themselves with the help of obliging remuneration committees and the collusion of the institutional shareholders, won’t achieve much at all. There are really only three mechanisms which are likely to have serious impact on this system of self-awarded greed. One is that a maximum ratio be set between top and bottom, which in the FTSE-100 companies is currently about 275:1. That needs to be steadily reduced in both the public and private sectors over a 10-year period to no more than 30:1. And before there are screams of disbelief and a stampede of top managers fleeing the country, it is well to remember that the ratio in Scandinavia and Japan is far, far less than in the UK, but the managerial performance and overall output and productivity record is higher in those countries than in the UK.

An alternative similar option would be guidelines set down by a Pay Commission directed to produce income ranges for top pay which over time would greatly reduce the differentials between the top and median/bottom. No doubt that would be objected to as being too rigid and bureaucratic, though the real objection (unspoken of course) would probably be that the detailed examination of relative merit underpinning the guidelines exposed how flimsy many exorbitant demands made by top executives really are.

The third mechanism would be that the pay claims of the top executives have to be approved by employee representatives drawn from all main grades within the company, at a meeting at least once a year when the company’s books are opened up and the funding available for pay increases for all the company’s members is determined after all the company’s other liabilities have been met. Cable likes to talk about transparency; this would be making it really happen.

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