Published on Nov 16, 2011
Paying Top Salaries – but that doesn’t mean you get Top People
There is constant criticism of how excessive salaries and bonuses are in the City and almost continuous comment of how greed in the financial community has driven the economy off course and our society out of balance.
However, it doesn’t end there. The City folk are an easy target in some ways, but it goes further: what of the overpaid senior executives in industry and, for example the generously remunerated senior directors in the BBC. In most such instances, there is no justification for the salaries and bonuses being paid out.
A just issued report from St Paul’s Cathedral (spookily published now and coinciding with the presence of the anti-greed protesters) addresses the problem of City and Business pay. Entitled ‘Value and Values: Perceptions of Ethics in the City Today’, its appearance seems to be by Godly timing, but in fact it was due to be published three weeks ago before the Occupy protest which has delayed its appearance. The conclusion of the Report was that most of the 500 finance workers in the City surveyed believed that bankers, stockbrokers and senior FTSE 100 staff are overpaid.
Interestingly enough, most CEOs (in other regular surveys or interviews) when questioned, say that money is not their main motivation in trying to reach the top of the tree. (The same, although not tested, is probably true of performers and footballers.)
Why then do we pay so much to those who are probably not worth it anyway and who would work for a lot less?
Rates of pay are driven up, in part, to ensure that ‘relativity’ applies: if the top dog gets paid a bounty, then each tier below is dragged up to close the gap and everybody wins a higher place up the pay scale – an organisation becomes full of these ‘paypals’! Thus the position becomes entrenched and difficult to break without the results cascading down the grades.
We can all give examples of executives who are paid more than they are really worth. I know I can, having met and seen at close quarters quite a few CEOs and MDs who, quite frankly, are paid beyond their value to their companies. Many know it themselves (the better ones), but the very bad ones are oblivious of this.
Unfortunately, the culture of the company then becomes one of excessive rewards and that is difficult to reverse. Most public companies pay out far too much to Board members, both executive and non-executive. How is this perpetuated? The argument goes, for the defence, that it is market forces that dictate the rates of pay. Nonsense! If the market worked in a pure form, companies would dictate terms, not the headhunters and individuals concerned who have convinced themselves and others of the spurious worth of the mostly suspect people who fill the top posts. (By the way, the same goes for politicians.)
However, companies are too scared to tackle executive pay and we seem as stuck with excessive earnings in industry as football clubs are with the rewards of their players.
Published on Nov 16, 2011 by Neil Thomas