Another challenge to the high levels of executive pay

T IS a phenomenon we have witnessed time and again: shareholders revolting against excessive levels of executive pay. It has been glimpsed at institutions as diverse as BP, WPP Plc, Goldman Sachs, estate agent Foxtons and betting company Paddy Power Betfair.

The irate shareholders are not alone. The High Pay Centre, an independent think tank, which asserts that growing differences in pay between high and low earners are neither fair nor proportionate, revealed last month that the chief executive officers of FTSE-100 firms have a median pay package of £4.3million, 140 times that of the average worker.

Theresa May’s Government sought to capture something of the public’s mood on the issue last month when it revealed plans to make companies justify high levels of executive pay. Some of the plans were diluted versions of Mrs May’s declared intentions when she first arrived at Number 10, but at least it was encouraging to see a Conservative Prime Minister expressing such sentiments.

Further ammunition has come in the shape of research by Lancaster University Management School. The correlation between high executive pay and good performance, it says, is “negligible”.

Although big company bosses took home pay rises of more than 80 per cent in a decade, performance as measured by economic returns on invested capital was less than one per cent over the period, it added. There was a “material disconnect between pay and fundamental value generation for, and returns to, capital providers”.

It would be folly to expect CEOs to capitulate in the face of all of this agitation; the best-paid bosses are rather skilled at thwarting proposals designed to put a brake on the upward trajectory of their pay. But it is to be hoped that the new findings will fuel shareholders’ determination to hold them to account. All-powerful CEOs have had it their own way for much too long.