Sky-high chief executive salaries divide society and take the UK back to Victorian levels of inequality
The great divide
The ‘arms race’ in pay at the top of the private sector has become a pressing issue for national debate.
At a time of austerity and modest pay awards for the majority of workers, rises for top company bosses of more than 50 per cent in basic pay, bonuses and performance awards last year, has led to a strident public outcry.
The High Pay Commission’s recent interim report found that the top 0.1 per cent of earners will take home 10 per cent of national income by 2025 and 14 per cent by 2030, taking the UK back to Victorian levels of inequality, if current pay trends go unchallenged.
Top pay has really taken off in the past 10 years, with remuneration for corporate leaders quadrupling while average wages have increased by just 0.1 per cent a year. This means FTSE 100 bosses are now paid 145 times the average wage and on their current trajectory this would rise to 214 times by 2020.
Pay levels at the top of the private sector outstrip those in housing associations, but the trends are similar. In recent years, the pay bonanza has leeched from private corporations to the public sector.
As Inside Housing’s survey shows, some top housing association bosses are enjoying pay increases of 10 to 15 per cent as well as healthy bonuses at a time of cutbacks and austerity across the industry. Pay for housing bosses has also overtaken that of the public sector with which they can more effectively be compared. Local authority bosses received on average £150,000 in salary last year.
Top pay is often justified by the need to attract and reward talent.
In our top companies, remuneration committees say they need to fish in a global talent pool. The housing sector also says it needs to attract executives from the private sector. But we believe that many of these justifications are myths.
There is very little global movement of executives across country borders. The argument that public and quasi-public sector companies need to pay well to attract those from private companies has more credence, but in reality there is very little crossover of executives between the two.
At the High Pay Commission we believe that these trends in top pay cause deep divisions within society, creating a detached corporate elite.
However, these trends will not be arrested without deep cultural change. Public anger is a start and business secretary Vince Cable, has started a consultation with a view to taking action on top pay. We would like to see pay awards simplified and remuneration committees reformed to include wider membership. Some perceptive executives admit the current system is unsustainable. We need to encourage more to ask whether they really are worth it.
Deborah Hargreaves is chair of the High Pay Commission.