Friday, August 31, 2007
Fat Cats are Unhealthy for Society
Giles Thorley, boss of pub firm Punch Taverns, is the kind of guy his employees might expect to stand them a pint should he ever meet them in one of his own pubs. Why? Because he earns 1,148 times the average salary of employees in his company. His total remuneration per annum? A wallet filling little matter of £11, 276,000. However, Bart Brecht, boss of cleaning fluids giant, Reckitt Benckiser, can top that with his island buying salary of £22.1 million.
Adding insult to this injury to the notion of fair pay or fairness of any kind for that matter, comes an article by Peter Newhouse, self styled 'independent consultant' on pay and performance management, who confidently assures us that:
The disclosure of executive directors' pay is good for society. Rather than being a cause for hand-wringing and envy, the Guardian pay survey's revelations of what our best managers can earn from running the UK's biggest listed companies should encourage others to follow in their footsteps. The survey found that directors' pay at the 100 largest such firms has risen by 37%, with the average chief executive receiving £2.9m, including salary, benefits, bonuses and gains from share incentive schemes. These figures send an important message to able and aspirational young people.
He goes on to assure us that if we don't pay them enough, the 'most talented managers' will swan off to other climes where there talents are appreciated. I have a problem with this.
1. Mr Newhouse, s happy to let salaries rip, let the market have its head. But where will the limits extend? 2000 times average salaries? 10,000 times? 1 million?
2. Huge inequalities in society are bad for them, fostering resentment, crime, disharmony. Moreover, for one person to receive so much more than his peers is surely unjust and morally repellent?
3. There is no evidence that our managers are so good that they would in any case be snapped up by firms abroad, just itching tom hand out those keys to chief executives' loos in the EU, USA or indeed anywhere else.
Professor John Van Reenen, director of the Centre for Economic Performance, and the co-author of a recent study into management practices at 4,000 companies, was critical of UK management and questioned whether British executives could cut it overseas if they became disenchanted with pay levels in Britain.
"UK management is not in the premier league. Management aspires to pay as well as the US, but our study finds that average management quality in the US far outstrips that in the UK. Only one in every 50 American firms in our sample can be described as 'very badly managed', compared with roughly 1 in 12 in the UK.
Like so many things the mega rich say about themselves, they give the rest of us a load of bullshit about their abilities and value for money when the rest of the world's companies would not give them the time of day. Shareholders must be given more power to challenge these ridiculous salaries and bring them back into the land of the sensible. JP Morgan, the legendary US financier, reckoned no chief executive should earn more than 20 times the salary of his average employee. How today's fat cats would scoff at that.
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