Top pay for top performers, only

The best performers will continue to be well paid, and deservedly so

By Michelle Perry | Published 15:25, 06 January 12

TopPayAs the year began, our political leaders have been scrambling to outdo each other on a daily basis to denounce “unjustified” executive pay and “crony capitalism” at every opportunity across the UK.

The topic, of course, is a justifiable concern for all, but policymakers’ overenthusiastic criticisms are in danger of turning the matter into a cynical political gameplay, while they simultaneously turn the screw on cash-strapped Britons.

Buzzwords like “crony capitalism” as spouted this week by deputy prime minister Nick Clegg jeopardise the seriousness of the weakening link between executive pay and company performance by creating a kind of white noise that deflects from the matter.

Recent studies have shown a growing disparity between top pay, the average pay of employees and corporate performance. The pay gap between executives and employees has widened so that in the past year FTSE 100 directors’ total earnings rose on average by 49 percent compared with just 2.7 percent for the average employee, according to a report by the High Pay commission published in November.

In the coming weeks ministers are to outline plans of how they propose to tackle escalating director pay. Proposals are said to include greater transparency of remuneration committees and more diverse pay committees including an employee representative – as in many German companies.

In anticipation of the proposals and the public’s growing anger at unwarranted payouts, especially for poor corporate performance, business lobby groups and the UK’s largest shareholder have also been quick to criticise excessive pay.

But it all feels like too little, too late. We’ve been here before. Why haven’t shareholders and business groups heeded the signs before now? In fact, every downturn attention turns to so-called fat cat pay, so why haven’t we learned the lessons of the past?

And will anything the government does now achieve the goal of ensuring that pay is only commensurate with performance?

The best idea I’ve heard so far that business secretary Vince Cable is considering stopping executive directors from chairing remuneration committees at other listed companies in an attempt to curb what many consider are “closed shops” of vested interests in British boardrooms.

There’s a lot of tough talk from ministers at the moment but little action, I’m looking forward to seeing the result of Cable’s consultation on remuneration at the end of this month.

And don’t for a minute think this is bad for business; the best performers will continue to be well paid, and deservedly so. Increased transparency and more accountability will sift out the poor performers, making room for those executives who look at businesses through sustainable eyes, and not just for short-term gains.

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