High Pay too High – findings of UK High Pay Commission

The High Pay Commission is an independent body set up to investigate high pay in the UK. A year long investigation culminated in the publication of a report on Monday. Those who’ve been keeping an eye on the recession will be wholly unsurprised to learn that the poorer members of society are bearing the costs of austerity cuts, whilst the top 0.1% of earners are getting richer. The Commission states that:

In 1980 top bosses were well rewarded, but they had not pulled so far away from the rest of society. Since then some of them have enjoyed an increase of over 4000% to what are now multi-million pound packages… so much wealth has been channelled to those at the very top. This is a trend that has led to such a huge rise in inequality over the period that Britain now has a gap between rich and poor that rivals that in some developing nations.

Amongst the figures quoted by the Commission, is the salary of the chief executive at Lloyds Bank (now partly owned by the State), which the Commission states has increased by more than 3,000% since 1980 to more than £2.5m – 75 times the average Lloyds employee’s salary. In 1980, it was just (‘just’ – hah!) 13.6 times the average. Lloyds have responded with the claim that “The High Pay Commission’s figures are flawed. They have compared the average basic salary of our employees to a remuneration package awarded to the CEO that includes salary, bonus and benefits. As a result they have reached an inflated number that is entirely unrepresentative of the truth” – because everyone knows that bonuses and benefits aren’t really part of one’s salary, just little treats left by the banking fairy.

A copy of the High Pay Commission’s report, including recommendations such as not-doing-salary-deals-in-secret, can be downloaded from here.

2 thoughts on “High Pay too High – findings of UK High Pay Commission

  1. Having read the Commission report, I get the sense that the Commission was handed, or else its members brought with them, a mandate to come up with a basis for regulating executive compensation rather than to dispassionately consider the wisdom of doing so.

    The revealing part is Section 3 (“Is the flood to the top a problem?”). It’s divided into three subsections, “the business case for fair pay”, “the economic case for fair pay”, and “the social case for fair pay”. One might, as a preliminary observation, question whether these headings don’t already signal some tendentious preconceived assumptions about the matter. One might also discount “the business case for fair pay” section, since it’s hard to see how or why that is properly the concern of government regulators.

    But leaving those two matters aside, it’s telling that so little ink relative to the rest of the report is expended on whether there is an economic case or a social case (well, a government case) for further regulating executive compensation; you’d think that ought to be half the report right there.

    To the extent it entertains them at all, the Commission gives pretty short shrift to arguments that additional government regulation of executive compensation would be objectionable from the standpoint of economics or political philosophy. This, despite the fact that the arguments that the Commission prefers to rely on are in some cases the minority position. It’s interesting to read how the Commission deals with this rhetorically. For example, “it has traditionally been argued that X. But that view is increasingly being challenged, for example, by Prof. Wossname who has suggested that X is wrong and might possibly lead under certain circumstances to negative economic consequence Y. ” We’re lucky to get a footnote representing the contrary view, much less any explicit sense of whether Wossname’s theories are accepted by a majority of his peers, or the tenor of their disagreement.

    The window dressing the Commission uses to dissimulate its exercise in question-begging is pretty threadbare. Regardless of the merits of the Commission’s recommendations, this is not an intellectually reputable way for a commission of independent experts to be carrying out their work. I’d be interested to see the Commission’s minority report, if there even was one.

  2. because everyone knows that bonuses and benefits aren’t really part of one’s salary, just little treats left by the banking fairy.

    I got the impression they were saying the opposite – that comparing “salary” of employees with “salary+bonus+benefits” of CEO ignores the bonuses+benefits given to the employees, which makes the employee salaries seem lower relative to the CEO salaries because you’re counting the full CEO salary but only partial employee salaries.

    It’s unlikely that it would make a significant difference to the result, however, since the average value of the bonuses and benefits received by employees would have to be around 5 times their base salary to bring the ratio back down to 1980 levels. Maybe it would make it 70:1 rather than 75:1.

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