Bosses ‘do not deserve bumper pay packets’ – so what’s the answer?

Last Updated: December 29, 2016By

Bosses at Britain’s 350 biggest companies were paid an average of £1.9m in 2014 [Image: Getty Images].

How can the executive pay increase be performance-related when their pay has risen by 82 per cent but performance has only improved by less than one?

I think we all know that pay rises are really related to greed.

That’s right – greed.

Company executives have the ability to vote themselves massive pay rises – so they do. Greed.

They could vote equal pay rises to themselves and every employee, but that never even enters into their sweet little, vacant little brains. Greed.

No – it is doubtful that anything crosses their minds other than speculation on what excuse to offer for denying a pay rise to the people who do the actual work. Greed.

This research shows that company bosses cannot be trusted to divide any firm’s profits in an equitable way.

Should legislation be enacted to take that power away from them?

Should they be, at least, encouraged to impose their own, equitable, way of distributing profits?

Or what?

The link between what bosses are paid and a company’s financial performance is “negligible”, new research finds.

The median pay for chief executives at Britain’s 350 biggest companies was £1.9m in 2014 – a rise of 82% in 11 years – the study by Lancaster University Management School found.

However, performance as measured by return on capital invested was less than 1% during that period.

The report’s authors said the findings suggested a “material disconnect”.

The study, commissioned by the investment association CFA UK, said the increase in executive remuneration was largely driven by performance-based pay.

It also said the metrics typically used to gauge company performance, such as total shareholder return and earnings per share growth, were too short termist.

The research suggested the need for “a more refined discussion about the type of performance measures employed” rather than remuneration levels and performance-related pay arrangements alone.

Source: Bosses ‘do not deserve bumper pay packets’, study finds – BBC News

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11 Comments

  1. Dave Rowlands December 29, 2016 at 5:00 pm - Reply

    The answer, to be taxed as income just like everyone else has to pay for getting a “Free” turkey at Xmas from the company,

  2. Rusty December 29, 2016 at 5:34 pm - Reply

    Ben and Jerry the ice cream makers used to have a policy where the top earners could only get 28 x the lowest worker in their company! They have since the late 90s sold the company so I don’t know if it continues today! It makes sense to me! Something JC could make as one policy to keep bosses honest!

  3. Jeffrey Davies December 29, 2016 at 5:49 pm - Reply

    oh dear blair and brown saying that paying the right man for the job hmm hasnt worked look to our councils who were on those 30 forty grand jobs but now are on inflated wages greed it seems has come full circl;e

  4. Barry Davies December 29, 2016 at 5:55 pm - Reply

    They seem to get a raise even when the income is negative and workers are being laid off, so it isn’t surprising that the report shows no correlation between the income and their pay raises.

  5. Wamda Lozinska December 30, 2016 at 2:02 am - Reply

    “The director of the High Pay Centre, Deborah Hargreaves, explains the phenomenon. She says:
    “The only reason why their pay has increased so rapidly compared to their employees is that they are able to get away with it.”

    http://www.michaelmeacher.info/weblog/2014/11/top-bottom-income-ratio-now-1751-it-should-be-cut-back-to-501/

  6. Wamda Lozinska December 30, 2016 at 2:05 am - Reply

    “There are really only three mechanisms which are likely to roll back the mountain of inequality that has built up in the last 30 years. One is a systematic and remorseless purge of tax avoidance by the richest individuals (via tax havens) and multinational companies (via transfer pricing).
    The second is by establishing the ratio between top and bottom incomes and slowly but relentlessly reducing it over time. On that basis I have sought a debate on the floor of the Commons to advocate this: “that this House calls on the Government to set guideline targets for remuneration which over time reduce the ratio between top and bottom incomes in large organisations to no more than 50:1.
    The third is by giving a vote on executive pay, not just to shareholders, but to representatives of the workforce who have a right to it as the co-creators of the company’s wealth. Or, perhaps, all three.”

    http://www.michaelmeacher.info/weblog/2014/10/britain-now-the-only-country-in-g7-where-inequality-has-increased-this-century/

  7. Paul December 30, 2016 at 9:39 am - Reply

    Since most shares in most companies are not held by individuals (which often do object to massive salaries paid to company directors and such like) but by corporations (which only care about dividends) curbs can only be made to top salaries when corporate shareholders support motions to put such curbs in place. This rarely happens in practice because corporate shareholders are run by people who enjoy unwarranted and inflated salaries themselves who, not wanting to cut off the branch they are sitting on, rarely rally to oppose escalating salaries and/or the bonus culture anywhere in business.

    Corporate interests dictate the behaviour of business not the wishes usually not bands of individual shareholders, who normally get voted down by corporations, e.g., hedge funds, whenever the often undeserved rewards of the upper echelons in business they have interests in are challenged.

    If you want to put a brake on avarice and greed as far as financial reward is concerned in respect to business you will have to enshrine such control in law which, in fairness, Theresa May has said she hopes to do.

    (My bet would be that such a move will end up stopped in its tracks.)

    Since the Conservatives look likely to remain in power for the foreseeable future, possibly indefinitely, May (and her successors) will have a good long while to be put to the test.

    • Mike Sivier December 31, 2016 at 11:49 am - Reply

      Interesting points… apart from the last paragraph which is only accurate up to 2020.

  8. Dez December 30, 2016 at 10:30 pm - Reply

    They keep their greed label at arms length to themselves by having mutually greedy friends on their remuneration boards. This keeps the increases going up on every Board so that they can ensure all their pays go up in line with generous % “market” increases that they generate amongst themselves with immunity. Bearing in mind not many of these greedy snouts deliver anything much for shareholders apart from less than average delivery returns and no where does it say if you are useless you go without any pay or bonus..no they award themselves termination packages including great pensions enhancements for their failure…this is a no lose situation for them that needed addressing many years ago as they will never voluntarily do the decent thing…..as they are not decent honourable people with integrity….they are just useless greedy oinks.

  9. Rusty December 31, 2016 at 12:04 pm - Reply

    You are forgetting those on high wages like to avoid paying taxes in the first place!

  10. Wanda Lozinska January 2, 2017 at 4:00 am - Reply

    “Research on top executive pay over the last decade has found that it had little or no correlation with key performance indicators that companies highlighted to shareholders. The research was undertaken by CFA UK and Lancaster Business School over the 10 years from 2003 to 3013 at 30 of the FTSE-100 companies. It found that executive managers’ pay is still determined by simplistic measures that bore little relation to long-term drivers of companies’ value. As a result, over a period when average incomes across the nation have now fallen in real terms close to 2003 levels, total chief executive remuneration has increased by two-thirds from £2.4 million in 2003 (£46,150 per week) to £4 million in 2013 (£76,900 a week). Even that was only the average at the top. Heads of health-care groups were paid £7.3 millions a year in 2013 (£140,385 a week), and oil and gas chiefs, predators on rising energy bills for ordinary households, managed to scrape a living on Just £5.7 millions a year (£109,615 a week)!

    Earnings per share is the simplistic performance measure most commonly used, though it tended to be used only one way. If earnings per share rose 30%, top executives felt justified in demanding at least a 30% hike in basic pay, plus of course a big leap in bonus payments. If however earnings per share fell by 30%, they simply tended not to get the hoped-for salary increments or expected bonus, but rarely if at all were obliged to take a 30%n cut in basic pay.

    Furthermore, earnings per share can be boosted by mergers and acquisitions activity that does not enhance profitability, diminishes competition and often acts contrary to the public interest. The CFA concluded that over-reliance on such poor measures of executives’ performance led to ‘investment myopia, earnings manipulation, excessive risk-taking, and threats to organisational culture’.

    What this analysis shows very clearly that top pay in the private sector cannot be left to private markets. They are so easily corrupted by greed, cronyism, short-termism, and a steep rise in inequality which is deeply counter-productive to good industrial relations. Relying on votes on executive pay once every 3 years for investors or institutional shareholders has clearly failed. The employees in the company should be given an equal say in determining executive pay at the top. That would change things.”

    http://www.michaelmeacher.info/weblog/2014/12/top-pay-unrelated-performance-just-greed-official/

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