Inflated Salaries...

[CogitoErgoSometimes]

... of £millions/year don't raise an eyebrow when paid to premiership footballers, actors, authors or the stars of TV shows, but are not acceptable for the directors of a successful company. Why?

What do Ed Miliband and Nick Clegg want to achieve by criticising directors' pay? Are they going to bring a law in to restrict the free market or is it just panto?

Also, why don't they mention the salaries of some of the BBC presenters, paid out of the public purse?

What breadandbutterfly said.

It's not wealth people object to, it's wealth that hasn't been earned (or has been stolen).

Wayne Rooney, JK Rowling et al clearly have a rare talent. They also didn't get rich by laying off their workers and grinding down their wages. I don't think people resent their wealth at all (other than Tories resenting JK because despite being as rich as Croesus she has had the temerity to remain left of centre and is therefore a class traitor).

What people do object to is rent-seeking mediocrities in FTSE companies sitting on each other's Boards and remuneration committees and awarding each other massive pay rises - an average of 49% when the pay of their staff isn't even keeping pace with inflation. There seems to be no connection between reward and performance in this world. Directors' pay goes up whether the share price is tanking or not.

And if FTSE companies are in an "international market for talent", how come the majority of their CEOs are British?

"Wayne Rooney, JK Rowling et al clearly have a rare talent"

I used to know Sir Terry Leahy, up until recently the CEO of Tesco. There is a man of rare talent. It's not as obvious talent, possibly, as a goal scored from the centre spot or queues of excited children outside a book shop but it was a talent nontheless. He took his organisation from #2 in the UK in the eighties to what it is today, employing many thousands of people all over the world. Many don't agree with some of that organisation's business practices ... and they have laid off workers before and the wages are fair rather than generous... but it can't be denied that it is a very successful company. It think there are many different forms of 'talent'... and managing a company at top level successfully is a talent.

I think most people are very relaxed with 'unbridled wealth' when it's in the context of 'unique talent' hence pretty much everyone being fine with JK Rowling being loaded. TV stars have been subject to the same scrutiny, cf Johnathan Ross's pay. No-one thinks Ross is that unique, so his pay was widely questioned.

Corporate salaries are a greyer area, since even though there are undoubtedly great 'talents' working on FTSE 100 boards most people assume that in general Directors are there through hard work, brains and luck - all of which should be rewarded but that are rarely unique.

When Directors award themselves these increased salaries but fail to similarly raise the average salaries of their workforce, what they are effectively saying is not just 'I'm worth it' (which might be true) but also saying 'you are not' to their workforce, and does contribute to dislocating the executive class from 'workers', which is not necessarily ideal for society.

I like the multiples idea, with the caveat that shareholders could disregard it if they deemed it appropriate. So the highest paid person in a company could only earn a multiple of , say, 15 times that of the lowest paid. (e.g. A senior executive of a callcentre business could earn up to £300K while the lowest paid employees were on £20K) This gives an incentive for executives to get salaries up across the company. There may be circumstances where they want to employ someone for more money, which they could do, they'd just have to justify it to the shareholders and get it passed by them.

Why should the CEO of a billion turnover corporation such as Apple or Mircosoft earn less than Bono?

The CEO is resposnsible for thousands of employees and has to compete in the market against other companies. I think the CEO deserves a far higher salary than Bono. Should the CEO be penalised and their salary be less than Bono's or Jonathan Ross's just because they do the good thing of providing employment for a low-paid trainee?

Well, the shareholders would probably take the same view, and award the CEO of Massive Corp a considerable amount.

The point is not that there would be a cap on salaries, more that salaries past a certain point would be scrutinised by those with a direct interest in them (shareholders, which in many instances would include other employees).

But a founder of a company created teh company from nothing and employed other people. Why should teh latest, lowest paid recruit have a say in what the founder, who provided the employment, is paid?

Surely, it is far more imporatnt for the public to have a say in how much BBC presenters and other public employees are paid, since the public effectively pays for them?

Let's not forget that wages act as an incentive. They are one of the factors that drive and motivate people to go that extra mile. How many people would bust a gut and put the extra hours in if the reward was relatively small? Our dynamic, capitalist society produces so many innovations that improve people's lives due to competition and incentives.

I think it does'nt matter what the differences in wages are, if people are being paid appropriately for their job in relation to others in the same role in the rest of the country, then what difference does it make what people at other levels are earning?

It's a bit like the other thread running with the woman who's husband is earning about £60k, but is doing a job that would normally pay a lot higher. Lots of people were shouting "£60k is a lot of money", well it is if your a teacher, it's really not if you're doing his job. He is being underpaid for the work he does in comparasion to what he could earn doing the same job in a different company, and I for one was suggesting he started looking around.

'But a founder of a company created teh company from nothing and employed other people. Why should teh latest, lowest paid recruit have a say in what the founder, who provided the employment, is paid?'

The founder of a company is extremely likely to be a significant shareholder. Not only does that mean that he would have a sizeable say on whatever salary he draws, he will derive an additional income from his shares, and also from whatever capital he made from the sale of the rest of the company shares when the company floated. The employee at the bottom of the company will have a very much smaller shareholding, if any at all.

I'm not arguing for a 'maximum wage' here. I'm arguing for transparency. Boards should have to justify their own salaries to their shareholders past a certain threshold.

'I'm arguing for transparency. Boards should have to justify their own salaries to their shareholders past a certain threshold.'

Nothing wrong with transparency. But why don't people demand the same transparency for journalists and BBC presenters, particularly if the public as opposed to private business is paying their wages?

But Lemon, isn't that what remunerations committees are for? Significant shareholders will have a representative on the remco anyway.

I should add, if you've started your own business and have no responsibilities to shareholders (not the case in the discussion about FTSE Directors salaries), then go ahead and pay yourself whatever you like!

I think it is about private vs public. If a company is a private company, then why should anybody (apart from owners and shareholdrs) have a say in what their pay structure is? It's about freedom.

But, if an organisationis a public organisation, then the public should have full transparency, since they are paying for it. That applies to politicians expenses and pensions, the BBC and any other public body.

Agree about the BBC - aren't they just about to/just have published their salaries?

Lydia, the multiples would be a line in the sand and would mean scrutiny over that line. It provides a benchmark that remunerations would then be measured against, and therefore shareholders/committee members could see Directors salaries against their employees. Remunerations committees appear pretty distorted at the moment and I think people would welcome this support from regulation. From what I've read of it, I think it could have a positive impact on corporate responsibility as a whole.

I think what people object to is that when things go wrong, the people at the bottom are the ones that suffer with wage freezes and redundancies, but the salaries of the people at the top in a lot of cases still go up. Then there seem to be lots of cases where the people who should be responsible seem to be able to walk away from the mess they made with huge severance packages and just walk into another high paying job.

'Agree about the BBC - aren't they just about to/just have published their salaries?'

Are they really going to do that? That surprises me. I bet they fear what the people's paper, the Daily Mail, will say about their salaries.

trixymalixy, you are right, things do go wrong. There are crap managers and there is mismanagemnet. But that is part and parcel of private enterprise as well as public enterprise. I don't think the public can intervene to that extent in private enterprise. Remember that teh public does tax the manager's salary, so we do get some of their bonuses back.

If a politician leaves office and leaves a note saying "sorry, there's no money left" and the country has to face huge cuts, doesn't the politician also just walk away?

In a communist system, all industry is public, therefore the Central Committee can dictate salary levels across teh board. But in a capitalist system, we have free, private enterprises and the Central Committee cannot dictate salaries.

I definitely, definitely didn't mean that the public should set private enterprise's salaries (except perhaps in the case of minimum wage). More that those with direct vested interests (eg pension fund holding shares in a company) should have some support to hold a bit of a leash on salaries.

Am I turning into a lefty?

Agree about minimum wage. We definitely need legislation for that. Agree that shareholders should have visibility and a say in what happens, but as Lydia said, I think a lot of that goes on already.

' it's a weird, weird day to wake up and find LD's posts are the most left-leaning on an issue like this'

A copy of the Daily Mail will put things back into proper perspective

I'm hoping that Johnson will have ironed the FT for me when I get down to breakfast.

If he hasn't, I would look at his inflated salary

Oh hang on, the Spectator might just do the trick - ...and lo

'The BBC's influence is huge.'

I thought so. I knew there would be a progressive hand behind it.