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Top pay unrelated to performance, just greed – official

GreedResearch on top executive pay over the last decade has found that it had little or no correlation with key performance indicators that companies highlighted to shareholders. The research was undertaken by CFA UK and Lancaster Business School over the 10 years from 2003 to 3013 at 30 of the FTSE-100 companies. It found that executive managers’ pay is still determined by simplistic measures that bore little relation to long-term drivers of companies’ value. As a result, over a period when average incomes across the nation have now fallen in real terms close to 2003 levels, total chief executive remuneration has increased by two-thirds from £2.4 million in 2003 (£46,150 per week) to £4 million in 2013 (£76,900 a week).

Even that was only the average at the top. Heads of health-care groups were paid £7.3 millions a year in 2013 (£140,385 a week), and oil and gas chiefs, predators on rising energy bills for ordinary households, managed to scrape a living on Just £5.7 millions a year (£109,615 a week)!

Earnings per share is the simplistic performance measure most commonly used, though it tended to be used only one way. If earnings per share rose 30%, top executives felt justified in demanding at least a 30% hike in basic pay, plus of course a big leap in bonus payments. If however earnings per share fell by 30%, they simply tended not to get the hoped-for salary increments or expected bonus, but rarely if at all were obliged to take a 30%n cut in basic pay.

Furthermore, earnings per share can be boosted by mergers and acquisitions activity that does not enhance profitability, diminishes competition and often acts contrary to the public interest. The CFA concluded that over-reliance on such poor measures of executives’ performance led to ‘investment myopia, earnings manipulation, excessive risk-taking, and threats to organisational culture’.

What this analysis shows very clearly that top pay in the private sector cannot be left to private markets. They are so easily corrupted by greed, cronyism, short-termism, and a steep rise in inequality which is deeply counter-productive to good industrial relations. Relying on votes on executive pay once every 3 years for investors or institutional shareholders has clearly failed. The employees in the company should be given an equal say in determining executive pay at the top. That would change things.

One Comment

  1. Robert says:

    MP’s you means 60% pay rise and still the greed made them steal from expenses. Seems these days everyone thinks they are above others.

    I would not worry to much with MP’s getting £7500 and in Wales £10,000 pay rises while the rest of us are told to stick to 1%.

    In the end you know something it’s getting harder and harder to tell which Blue to vote for the newer labour one or the old Tory one.

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