BLACKFRIAR: Let's not confuse excessive pay with rewarding success

The remarks, given well before the financial crash and resultant sustained period of austerity, speak very much of the time when the accumulation of vast wealth and corporate misbehaviour were far from the public consciousness (notwithstanding I would imagine the present governance of the Labour Party).

Given the language of the Conservatives in recent weeks on the accumulation of wealth, particularly with regards to executive pay, it is incredible to think that such comments would come out of Government.

Yet these are the times we are in.

The facts are staggering. The remuneration package of the average chief executive officer in Britain has quadrupled in the last two decades. This figure for the rise in average earnings does not even come close to matching this.

The pledge to enforce companies to disclose the rate of pay for its top bosses and then subsequently explain the rationale behind the levels to staff, has been swiftly abandoned in recent weeks.

Instead a voluntary code is to be instituted.

Increasingly there seems to be a groundswell of opinion in favour of handing more control to shareholders.

Simon Richardson, Senior Lecturer in Human Resource Management at Westminster Business School, said: “The government’s final confirmation of the measures taken to curb excessive executive pay resemble a voluntary code of practice rather than a set of clear legal steps which provide shareholders with the power to block what they perceive to be inappropriate pay packages.

“Although measures such as the provision of a register of companies who have lost advisory votes of more than 20 per cent against CEO pay packages, the publication of pay ratios and requiring non execs to represent employees, contribute towards a greater transparency for shareholders to evaluate pay deals each year at the AGM, they do not provide the ultimate sanction.”

Another factor to consider is that the average FTSE 100 CEO pay package has reduced by 17 per cent from £5.5 million in 2015 to £4.5 million in 2016, a consequence I would imagine of the fact that shareholders were likely to have a power of veto as a result of annual majority vote becoming binding rather than advisory with the new legislation.

At a time when the economy and nation as a whole faces so much uncertainty it is easy to identify the origin of so much disquiet over excessive pay.

The average worker in the UK will not have seen a substantive pay increase for many years now, a state of play that does not seem likely to alter any time soon.

However we must not confuse excessive pay with bonus payments or rewarding performance.

While Blackfriar welcomes any moves towards fairness and greater transparency in the corporate world, it cannot help but feel a sense of unease at the idea of naming and shaming executives, particularly when they have been given raises approved by shareholders who are ultimately the authority on how the company is run.

When the issue of high pay becomes pernicious is when it increases in the same year that performance deteriorates.

Offering incentives to boost performance is one of the most commonly used tactics in the history of capitalism.

To offer rewards to those who have seen a decrease in performance levels is counter-intuitive and brings more negativity from the public to the corporate world at a time when British industry needs a strong profile perhaps more than ever.

While I would never echo Mandelson’s words and say I was comfortable with people getting filthy rich I would add that rewarding top performers is the best system there is for encouraging success.