Highly paid chief executives make us all feel small.
While property prices in the country in general are still 33 per cent off their boom-time peak, property prices in Sandycove in south Dublin are only 5 per cent off their 2007 peak. They are likely to pass that peak by the end of this year and continue upwards.
The acceleration of Sandycove prices versus the rest of the country is what could be termed the “room with a view” premium. Houses that command a view of the sea or over the city lights have seen their value rocket by more than anywhere else in the past few years.
For example, apartments in Grand Canal Dock, with views over the water and across the city, are only 14 per cent off their peak while the rest of the city lags behind, according to Ronan Lyons of Trinity College Dublin and Daft.ie.
The prices of second-hand classic cars and wooden hulled yachts are rising fast too, while tables at expensive restaurants are almost impossible to get in Dublin, Cork and Galway.
Houses with sea views, swanky cars and posh restaurants are all “bragging purchas- es”. The economics of bragging is all about signalling that the buyer has enough cash and is prepared to pay for the status that these assets and experiences confer.
Buying high-status goods is not new. Ever since the first cave dweller gave his missus an ornately carved mammoth’s tooth, we humans have craved and conferred status via rare things. Beautiful and scarce items deliver meaning beyond their intrinsic value.
Regularly the expense is a “willy waving” competition among rich men. Sticking with willies, did you know that the bar stools on Aristotle Onassis’s yacht, The Christina O, were covered with buttery-soft and extraordinarily expensive sperm whale foreskin? But this ostentatious, and I suspect rather meaningless, gesture (although I have never experienced the frisson of sitting on a dead whale’s foreskin) was part of Onassis’s battle to outdo fellow Greek shipping tycoon Stavros Niarchos. When two rich men start fighting over a trophy, all reason goes out the window.
This is an extreme example, but such positional spending does create social anxiety, particularly as we move towards the middle classes. The behaviour at the top seeps into the consciousness of those lower down the social scale, because what makes people anxious is not their absolute level of income but their income or wealth relative to other people’s.
It is the contrast in society that is the source of friction. If you feel that you are going backwards while some people are moving out of sight, it is normal to feel inadequate. This sense of inadequacy can trigger social problems, where people feel they either do not have a stake in society or that their stake is diminishing.
And this brings me to the extraordinary evolution in Irish chief executive pay and benefits in the past few years. At the top of Irish companies, a winner-takes-all culture has developed, whereby the rewards at the top are extremely high, and the gap between the boss and the average worker is widening.
Look at the salaries of Ireland’s superstar chief executives in the past few years.
In 2001, the chief executive of CRH, Ireland’s largest listed company, earned 50 times more than the average worker in the country. This extraordinary differential could arguably be justified by the strains of the job and the unique skills required to run a large corporation. But by 2016, the chief executive of CRH earned 267 times more than the average worker.
A worker on the average wage would have had to work for 53 years to earn what the CRH chief executive did in 2001, and would have to work for 267 years or until the year 2285 to earn as much as the chief executive earned in 2016.
Bosses have always earned more than their underlings, but in Ireland today the differential between what the people at the top of some large companies have elected to pay themselves versus what the average worker earns is pretty much off the scale.
In 2001, the boss of DCC, another large Irish conglomerate that owns companies including Flo Gas, earned 33 times the salary of the average worker. Today, the boss earns 120 times the average.
At Kerry, the maker of Kerrygold, the top dog earned 37 times the average guy in 2001. Today his income is 97 times the average industrial wage.
And in Tullow Oil, the corresponding figure was 21 times in 2001, and today the chief executive takes home a cool 101 times the average worker.
Technically and legally, if the shareholders are cool with that, then we shouldn’t worry – it’s shareholders’ money after all. But we should be aware of what is happening because such disparities affect us as a whole.
When we get runaway rewards at the top, the spending at the upper echelons of the country sparks a consumer spending race. It drives up prices of all sorts of premium goods – like Sandycove houses with sea views.
The process is communicated to people lower down through property supplements like the one published every Thursday in this paper, whose lead story usually features a high-end, out-of-sight home. It tells us something about the social anxiety the rest of us feel that this out-of-reach gaff is often listed among the most viewed stories on irishtimes.com.
Ireland is not unique. These trends are global. In the past, this “winner-takes-all” dynamic was limited to rock and roll and sport, but this has changed. The superstar culture is evident in lots of areas where rock-star private surgeons, celebrity orthodontists, super-star gynaecologists, big-wig barristers, and even grind school teachers, Pilates instructors and personal trainers make much more than others in their field.
The enormous gap between chief executives and average workers is only one sign of this recent trend, but given the amounts involved and its impact on society, it’s something to keep an eye on.