The bad and the good of bumper bosses pay

 

There are several ways of looking at the 32% rise to £3.5m in the median pay of FTSE 100 chief executives, as disclosed in a survey by MM&K and Manifest.

As is clear from comments on my @peston Twitter stream, many of you see it as a manifestation of insensitive and irresponsible behaviour by the remuneration committees of our biggest companies, at a time when average earnings of the UK workforce is falling in real terms (or after allowing for inflation).

Another point of view is that this is a manifestation of globalisation, or that most FTSE 100 companies generate most of their revenue outside the UK. If they're British, that may be true in a cultural sense, but not really in an economic sense.

Think Vodafone, HSBC, Shell, Rio Tinto, BHP Billiton, Diageo and so on.

So even if the UK economy is only slightly less flat than a pancake, and the US and continental Europe aren't exactly booming, Asia, for example, is an altogether different and more buoyant economic world. Asia helps sustain the earnings of the genuine multinationals.

What's more, as I've pointed out here repeatedly, a growing number of the bosses of these companies aren't Brits - and therefore they are demonstrably available for hire in a global market. This makes it hard for remuneration committees to ignore the mega bucks available at US competitors.

Finally, the bumper pay can be seen as a reflection of the success of the London Stock Exchange at becoming the listing destination of choice for global commodities companies.

So at a time when the world is experiencing perhaps the greatest commodities and energy boom in history, it's perhaps not surprising that the pay of those who run the likes of Xstrata is massive.

But what that tells you is that there is an element of windfall in the remuneration of the pay of some of these chief executives - which a sensible remuneration system would presumably endeavour to minimise.

What's more, for some of the more UK focussed businesses, success has come in the form of cost cuts rather than revenue growth.

Some will argue that it is more meritorious to generate profits from growth rather than shrinkage - which should, they would say, be captured in formulae for determining CEO rewards (this is a highly contentious point; productivity gains are valuable to a business and an economy).

But the main argument against the 32% remuneration rise for the bosses is that it seems totally disconnected from what they've delivered to the owners, to shareholders, over the long term or the short term.

The FTSE 100 index, a proxy for the share price performance of FTSE 100 shares, is still not back to where it was 11 years ago, during which time the average pay of FTSE 100 bosses has more than trebled.

And in the past year, rewards for bosses of FTSE 100 companies have risen at a rate more than three times as great as the increase in FTSE 100 share prices.

Or to put it another way, you could argue that what's been happening to FTSE chief executives' pay fails the tests both of socialism and of capitalism.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
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    Comment number 169.

    Yes every UK government under the sun has critisised every bout of excessive executive pay packets and what have they done- like the Tory and even the Labour supporting press alot of tut tutting and little else so that the villians laugh all the way to the proverbial bank with their often ill gotten gains

  • rate this
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    Comment number 168.

    yes, I thought I had corrected this by deleting one e mail application which I had done and forgot about so that there should be only one of me now ....so cheers!

  • rate this
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    Comment number 167.

    I did as instructed and still can't sign in. I have limited time and patience for this kind of thing so if there is another 'me' about I might have been told, thanks

  • rate this
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    Comment number 166.

    Obscene greed by these people. They avoid taxes, I suspect that they do not put in as much effort as those employed at the bottom of society. But how to make them responsible to society. There should be a tax that is global in its nature, one that cannot be avoided by clever accounting. If these people say they will go elsewhere let them go but they cannot set foot or trade in UK ever again

  • rate this
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    Comment number 165.

    I don't care what my bosses earn as long as they are good at their jobs and keep me in mine.

    There are two groups in work; those who have the power to write their own paycheque & those who can't.

    If I could pay myself what I thought I should have would I pay myself more? yes I would.

    I have seen bad bosses, paid lots of money and unless they call their boss 'Dad' usually they get sacked.

 

Comments 5 of 169

 

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