Old debate on executive pay raises its head
Is Nokia chief Stephen Elop worth €19m? The side you’re on is determined by where you sit
If the facts are well established, the reasons underlying all of this are a matter of much dispute. Globalisation, financialisation, technological change, the demise of trade unions: these are the usual suspects. It’s a complex story with many different drivers.
Why are Premiership soccer players paid so much more than before? The advent of satellite and other means of broadcasting - technological change - are obvious drivers. What about bankers? Financial salaries have always been high but their growth in recent decades is unprecedented. We know where all this ended up but it is far less clear why the financial sector grew so much for so long.
Boardroom pay is another mystery. It has always been the case that owners of successful companies have been well rewarded. What’s new is the way in which mere employees are paid as if they are owners, without much connection to success or failure. Any explanation that focuses on ‘market forces’ is easily dismissed. There is scant evidence that senior executives move around between different companies in a way that is consistent with the usual workings of supply and demand. The finger of suspicion is pointed firmly at ‘remuneration committees’. By definition, this is the action of a central planner rather than an impersonal market force. And a central planner that often has skin in the game: a member of a remuneration committee is often an executive of another company, where another remuneration committee sits, looking at the data that determines his pay. If the name of the game is to pay ‘market rates’ you want those rates to be as high as possible.
In the US and elsewhere there is some recognition that ever increasing inequality is unsustainable. The mammoth Dodd-Frank legislation that seeks to remedy much of the evident ills of financial and corporate life has something to say about all of this. Amongst other things, it seeks to compel companies to shed more light on the ratio of CEO pay to that of the ordinary employee. Even this small measure is under attack from senior Republicans. But when the basis of the American dream - the ability to get ahead - is under such evident threat, expect much more on all of this.