UK Edition
Dig out the tiny violin and strike up the band – Britain’s bosses want to be paid more.
Despite our much-publicised world-beating income inequality, wealthy executives at blue-chip companies are busy pitching US-style mammoth pay packages to investors for approval. Their argument is that Americans doing the same job get paid more and it’s not fair.
Given how many people in the country (14.4 million, including 4.2 million children) are now living in poverty and are significantly underpaid, the conversations are a lesson in how to infuriate staff and customers – and give opponents of capitalism a new stick with which to beat corporate Britain.
Is life not already good enough for those at the top? After 15 years of negative wage growth for the rest of us, thoughtless boards risk a self-inflicted wound by droning on about how many millions their bosses deserve.
Yet the City investors who once made it their mission to push back on fat cat pay have decided not to get their claws out this year. And they might be onto something.
Despite the cacophony of criticism that will be provoked by a rethink, Britain’s blanket intolerance of big pay packets risks destroying the UK’s growth prospects by forcing influential decision-makers elsewhere.
There’s no doubt that the London stock market needs reinvigorating. There has been a 40pc fall in the number of listings since the 2008 financial crisis, with the tally of London-listed companies signalling a desire to switch to New York getting longer and longer.
Vilifying high-earners will only be part of the problem, but City executives are hoping that a shift in Britain’s approach to pay could stem a potential exodus out of the Square Mile.
The London Stock Exchange Group has just proposed a doubling of chief executive David Schwimmer’s maximum pay, a year after his company said that efforts to attract the best and brightest to Britain were being hampered by those fighting wage increases. HSBC, too, is said to be sounding out investors about higher bonuses for top brass.
American bosses considering a UK push have been quietly expressing concern about the hostility towards high earners in this country, given that chief executives of S&P 500 companies make on average $10m (£8m) more than their FTSE 100 counterparts.
BT’s former boss Gavin Patterson summed up the problem four years ago, when he moved to America to work for Silicon Valley software giant Salesforce and pointed out that the perks of his move included more money and “no public outcry if you are successful”.
One issue is that finding talent for the very top jobs is getting harder and harder. A study by Fortune last year concluded that there’s now less financial incentive to become a chief executive – a job which has become increasingly politicised and often involves an intense amount of public scrutiny – because the earnings of those in less high-profile, less stressful senior roles have increased by so much more.
The point about supply and demand is often missing in the debate about high wages. Academics have flagged in the past that public fury over pay is too often focused on stories of corporate scandals and bad apples who behave badly, rather than the more humdrum reality of linking better salaries to increased corporate governance and ensuring pay is measured against performance.
When Steve Kaplan, a professor of finance at Chicago Booth, examined the issue a decade ago he argued that it is not executive pay which causes social tensions but high unemployment and a weak economy – the result of “bad government policies”.
Politicians are careful not to be seen flying the flag for the mega-rich. Peter Mandelson went on to distance himself from a comment he made in 1998 in which he said he was “intensely relaxed about people getting filthy rich as long as they pay their taxes”.
Yet Sir Keir Starmer last year agreed with the comments from the New Labour years, saying he knows “what aspiration is” having come from a working class background. His stance suggests that attitudes about pay in the UK could soften.
Even so, a disparity between US and UK wages is inevitable. The US grew 2.5pc last year while the UK fell into a technical recession.
UK pay growth has stagnated since the financial crisis amid a collapse in productivity, with workers in the US producing 28pc more per hour than those in the UK in 2019.
Top executives who have worked on both sides of the Atlantic stress how complex this debate is. The hours tend to be much longer and the holiday allowances significantly shorter in America compared to here.
The largest American companies are also significantly bigger than the largest British ones, and UK chief executives have similar salaries to their counterparts in the rest of Europe. Few people will also relocate to a different country purely for the money.
Although Reckitt Benckiser’s former boss Laxman Narasimhan swapped a $7.5m salary for a $17.5m one when he moved back to America to run Starbucks in 2022, he noted that the move was motivated by a desire to be with his family, who remained there when he moved to the UK for the Reckitt job.
John Flint, HSBC’s former boss, says he’d be cautious about hiring anyone whose sole motivator for a job was the amount they were getting paid.
It would be naive to think that ramping up bosses’ wages will fix Britain’s stubborn stock market woes.
Many chief executives don’t deserve it. Thousands of jobs are being cut across the country amid sinking profits and more scandals will emerge.
Executive pay should always be scrutinised and the pushback from investors and the public against undeserved rises is important.
But the wider attitude towards top earners now needs to shift. As London fights to retain its financial services crown post-Brexit, the blanket intolerance to all City fat cats is starting to look outdated.
British hostility towards high earners is undermining the City
Restrictive pay packets are helping fuel a US-bound exodus of listed businesses