Busi­nesses rely on the state. They must be­have re­spon­si­bly on bosses’ pay

The Guardian - Journal - - News -

The de­par­ture of Jeff Fair­burn as chief ex­ec­u­tive of Per­sim­mon, the house­builder, is a bit­ter­sweet vic­tory for com­mon sense. Mr Fair­burn was orig­i­nally granted a ridicu­lous £100m bonus but, af­ter a pub­lic back­lash, agreed to re­duce that sum by 25%. A dis­as­trous in­ter­view in which it was clear that he could not – and would not – de­fend his £75m pay­out meant it was only a mat­ter of time be­fore he would go. Now he has been asked to do so. It is galling that he keeps his lu­di­crous pay packet. In an age of in­se­cu­rity, when the top 1% ap­pear to be rac­ing away with the na­tion’s wealth, it feels morally of­fen­sive.

How much bosses ought to be paid com­pared with their em­ploy­ees is an im­por­tant ques­tion which politi­cians will soon be forced to face. From 2020, Bri­tain’s big­gest com­pa­nies will be legally re­quired to pub­lish the gap be­tween the salary of their chief ex­ec­u­tive and what they pay their aver­age UK worker. His­tory does of­fer some guide. In a very dif­fer­ent age, Plato thought that the earn­ings of the very wealth­i­est should be capped at five times those of the poor­est. The Labour party last year promised max­i­mum pay ra­tios of 20:1 in the pub­lic sec­tor and in com­pa­nies bid­ding for pub­lic con­tracts.

In trouser­ing £75m, Mr Fair­burn earned about 3,000 times more than a worker on a me­dian salary – wildly out of step with the spirit of the times. This was not about “out­stand­ing per­for­mance”. His re­mu­ner­a­tion was linked to Per­sim­mon’s share price, which zoomed up­wards thanks to the govern­ment’s help-to-buy scheme. It seems ob­vi­ous that ex­ec­u­tive pay ought to have been capped when state money drove the cor­po­rate growth. But Per­sim­mon’s bosses ev­i­dently saw noth­ing wrong with unadul­ter­ated greed.

Un­der the scheme, £400m was to be paid out to 150 man­agers. The com­pany chair­man left over this er­ror.

Pay for chief ex­ec­u­tives at Bri­tain’s big­gest com­pa­nies is ris­ing six times faster than wages in the wider work­force. Pub­lic anger is un­der­stand­able when the aver­age FTSE 100 boss is paid 167 times as much as the me­dian UK salary. Ex­ec­u­tive com­pen­sa­tion of­ten looks rigged be­cause CEOs al­ways seem to walk away with a big pay packet whether they fail or suc­ceed. Renu­mer­a­tion boards are too fre­quently stuffed with in­sid­ers who hand out bumper re­wards to friends.

There is a place for profit-max­imis­ing be­hav­iour, but firms should nonethe­less be re­spon­si­ble cor­po­rate cit­i­zens. CEOs are re­place­able. Their suc­cess is not just down to in­di­vid­ual bril­liance and hard work. It is easy for suc­cess­ful busi­ness­peo­ple to for­get how they got ed­u­cated, where they got health­care, how they travel to work, who pro­tects their in­tel­lec­tual prop­erty, who funds their early-stage re­search, who reg­u­lates their mar­kets and bails out their banks. It’s so­ci­ety. We pay for all that. Per­sim­mon made the link ex­plicit. Thomas Piketty rightly pinned much of the blame for in­come in­equal­ity on ex­ces­sive pay rises. Stud­ies show that Bri­tain’s CEOs are vastly over­paid, and there would be no neg­a­tive im­pact on the econ­omy if their salaries were slashed. There has been a pol­icy of pay re­straint in the pub­lic sec­tor. Would it not be a good idea to have one in the board­room too?

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