Is this the best way to curb board­room pay?

The Guardian - Journal - - Letters -

Larry El­liott’s ar­ti­cle (Labour plans to give cus­tomers of big firms vote on board­room pay, 27 Novem­ber) gives promi­nence to the rec­om­men­da­tions of a re­port com­mis­sioned by the Labour party and con­ducted by a group of aca­demics. I be­lieve that aca­demics of­ten bring in­sights based on ro­bust the­o­ret­i­cal and em­pir­i­cal ev­i­dence to pol­icy de­bates, but I think this re­port fails to con­sider main­stream aca­demic re­search that has been done in this area over the past 30 years.

Re­search into cor­po­rate gov­er­nance over the last few decades has largely reached a con­sen­sus that man­agers should be mo­ti­vated through the use of eq­uity-based in­cen­tives.

In that sense, the re­port’s rec­om­men­da­tion to pay man­agers only in cash is un­founded.

In ad­di­tion, while it is nec­es­sary for stake­holder needs to be taken into ac­count, it is im­por­tant that de­ci­sions over ex­ec­u­tive pay are based on in­formed dis­cus­sions and ro­bust ev­i­dence, which typ­i­cally in­volve costly mon­i­tor­ing. This is why share­hold­ers and in­de­pen­dent ex­perts hired by them should be lead­ing these dis­cus­sions, as op­posed to cus­tomers who don’t have the ex­per­tise or the in­cen­tives to bear the costs that come with seek­ing ex­ter­nal ex­pert ad­vice.

Over­all, it is vi­tal that re­search com­mis­sioned by pol­i­cy­mak­ers re­mains ob­jec­tive and fo­cuses on of­fer­ing pol­icy ad­vice grounded on ro­bust ev­i­dence, par­tic­u­larly in an era of pop­ulism and dem­a­gogy. Kon­stanti­nos Stathopou­los Pro­fes­sor of ac­count­ing and fi­nance, Al­liance Manch­ester Busi­ness School

John McDon­nell and Re­becca Long-Bai­ley have again touched upon an im­por­tant cor­po­rate gov­er­nance is­sue in iden­ti­fy­ing the need to curb board­room pay. It is a pity they have once again al­lowed their pop­ulist in­stincts to pro­duce a laugh­able re­sponse.

In­stead of play­ing to the gallery but ex­pect­ing the pub­lic to do all the heavy lift­ing, they need to com­mit to some se­ri­ous and clear-cut leg­is­la­tion on ac­cept­able pay ra­tios for board mem­bers.

Some lead­ers al­ready cap their pay at a ra­tio of the min­i­mum or av­er­age pay in their or­gan­i­sa­tion. Labour should in­sist on such a re­stric­tion for all busi­nesses with more than 250 em­ploy­ees. The right ra­tio is surely some­where be­tween 10 and 20 times me­dian pay within the or­gan­i­sa­tion.

The pro­posal to re­move all share op­tions is a mis­take. Many of the cur­rent range of tax­ad­van­taged share schemes serve to widen em­ployee own­er­ship and par­tic­i­pa­tion. To be sure, there are ex­cesses which need reign­ing in, but these schemes should be re­vised to form the ba­sis of wider em­ployee share own­er­ship, rather than abol­ished al­to­gether.

Em­ployee rep­re­sen­ta­tion on com­pany boards is cer­tainly a de­sir­able ob­jec­tive and more em­ployee share own­er­ship is es­sen­tial to make that mean­ing­ful. There is no golden bul­let to make boards more ac­count­able to em­ploy­ees, share­hold­ers and other stake­hold­ers but wider em­ployee own­er­ship is a nec­es­sary con­di­tion of any so­lu­tion. Paul Saw­bridge


Larry El­liott’s re­port on John McDon­nell’s plan to re­strict pay in the pri­vate sec­tor be­trays how a po­lit­i­cal im­per­a­tive can dis­place a fi­nan­cial and eco­nomic im­per­a­tive.

As an ac­coun­tant, McDon­nell should have un­der­stood that the way to con­trol com­mer­cial ex­pen­di­ture is to re­strict the de­duc­tion for in­come tax. Above an al­low­able ceil­ing a com­pany must pay ex­cess re­mu­ner­a­tion from its tax paid in­come. The same prin­ci­ple should ap­ply to the in­come tax de­duc­tion al­low­able for low pay. Any pay be­low the statu­tory min­i­mum should not be claimed as a tax de­duc­tion.

Un­der such a scheme, cor­po­ra­tion tax buys ac­cess to a na­tional mar­ket place. Any com­pany not pay­ing tax loses the right to trade in the home mar­ket. A corol­lary would be the gov­ern­ments would lose the free­dom to change tax rates for po­lit­i­cal pur­poses. Martin Lon­don

Hen­l­lan, Den­bighshire

Some lead­ers al­ready cap their pay at a ra­tio of the min­i­mum or av­er­age pay in their or­gan­i­sa­tion Paul Saw­bridge

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