Top pay

Slowing down the gravy train

  • The Guardian,
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One problem that will not go away this year is top pay, which is moving up the political agenda on both sides of the Atlantic. The difference is that in the US they are trying to do something about it. From now US companies have to include in their annual reports a single figure for the total pay of their executives: salary, perks and pensions. This is a small step for humanity but it at least tells shareholders exactly what their top executives are earning. It is a response to public concern about pay rises unrelated to effort, plus a raft of high-profile cases of failed executives getting pay-offs of up to $100m, and others stock options backdated to give them a share of earlier capital gains.

In Britain the temperature is rising for two reasons. First, the problem is getting worse: every year top executives vote themselves rewards totally out of kilter both with what their employees earn and the success they achieve. No one minds when it involves people who have clearly made a big difference - such as Stuart Rose of Marks & Spencer and Sir Terry Leahy of Tesco - but that is not what has been happening. Corporate top brass regularly reward themselves way above the "going rate" thereby creating an ever-accelerating gravy train. As a Guardian survey showed, directors' pay soared by 28% in the latest year, following rises of 16%, 13% and 23% in previous years. Top chief executives now earn well over 100 times what an average staffer pulls in compared with only 25 times not long ago. Second, it is these same high-earning executives who will have to take the lead in curbing pay at the bottom in order to prevent increases in average earnings from breaking the 2% price inflation target that Gordon Brown is tied to. It beggars belief to think what words and arguments they will find to justify such huge discrepancies.

What can be done? Peter Hain, the Northern Ireland secretary, is reported to be studying ways to reduce the gap. One way would be to allow top executives to raise their salaries by whatever they like as long as the same percentage is given to everyone. This would widen the cash gap because 5% of £1m is worth much more than 5% of an average salary. But it is a start. Gordon Brown, despite a strong social conscience, seems to think that such salaries, while not desirable, are a small price to pay for the City's global supremacy - and the strong tax revenues bonuses bring in. But this is not a problem limited to the City. Such salaries are justified as a reward for taking risks. But if failure is so richly rewarded then they are not really taking risks. This is not good for capitalism and it is not good for social justice. If Mr Brown believes in a fairer society, he should make top pay reform a priority for his personal manifesto.

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