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An independent British commission has just demolished the defenses that overpaid executives and their flacks have advanced to justify why executives today merit so much more than their counterparts a generation ago.
Bob Diamond, an American banker, currently runs the British banking behemoth Barclays. By U.S. standards, Diamond doesn’t rate as particularly overpaid. At last count, he’s only pulling in £4.4 million a year, the equivalent of about $6.7 million.[pullquote]You have one last chance, this powerful indictment of executive excess is warning Britain’s powerful, to restore some common sense to executive pay.[/pullquote]
The real outrageousness of Diamond’s paycheck only becomes unmistakably evident when we mix in some historical context. Back in 1980, the top executive at Barclays took home just 13 times the annual pay of the average British worker. Bob Diamond’s pay today equals 169 times average UK worker pay.
Final “plea” might be a more accurate description. You have one last chance, this powerful indictment of executive excess is warning Britain’s wealthy and powerful, to restore some common sense to executive pay. If you fail, you have only yourselves to blame for the “social unrest” that will surely befall you.
The UK’s wealthy and powerful won’t be able to easily slough off this High Pay Commission admonition. The commissioners — from chair Deborah Hargreaves, a former Financial Times editor, on down — have too much national credibility to ignore. And the British media certainly haven’t ignored them.
The high pay panel has been making headlines ever since its launch a year ago. Last week’s final report release drew extensive coverage, from media outlets across the British political spectrum.
The new High Pay Commission report, entitled Cheques With Balances, essentially demolishes all the defenses that overpaid executives and their flacks, in the UK and the United States, have advanced to justify why executives today merit so much more than their counterparts a generation ago.[pullquote]Excessive rewards for the UK’s corporate and banking elite have helped quintuple the share of national income that goes to Britain’s top 0.1 percent.[/pullquote]
Excessive rewards for the UK’s corporate and banking elite, the commission details, have helped quintuple the share of national income that goes to Britain’s top 0.1 percent, from 1.3 percent of national income in 1979 to 6.5 percent.
If executive pay continues to rise at its current pace, the commission adds, that top 0.1 percent will be pulling in 14 percent of UK income by 2035, a level of inequality not seen since the days of Charles Dickens.
To curb that current pace, the High Pay Commission has proposed a series of 12 eminently moderate reforms, a set of proposals that don’t go nearly as far as the original advocates for a High Pay Commission may have hoped.
Back two years ago, these advocates — a group of 100 nationally known lawmakers, scholars, journalists, and activists organized by the Compass think-and-act tank — called on the then-ruling British Labour Party to create a commission that would “consider proposals to restrict excessive remuneration” via “maximum wage ratios and bonus taxation.”
The Labour Party government ignored that call, and Compass a year later would establish the commission on its own, with the help of one of Britain’s most highly regarded foundations.
The high pay panel’s six members haven’t called, in their final report, for a “maximum wage.” They do call for disclosure of the ratio between chief exec and median worker pay, worker representation on the corporate panels that set CEO pay, and the replacement of intricate CEO pay deals with straight-salary arrangements that include, at most, one performance-related bonus element.
The remainder of the commission’s dozen recommendations all fall within the “interlinked and inseparable” principles of “transparency, accountability, and fairness.” Their adoption, says the panel, “could mark an important turning point.”
But these dozen proposals, the commissioners note, amount to no “quick fix.”
“It took 30 years to get us to this place and it may easily take that long to reverse,” the high pay report acknowledges. “This is not to admit defeat, but is a recognition that these are just the first steps in what is the much longer and deeper process of cultural and economic change that is required.”
What relevance does the new High Pay Commission report hold for the United States? All the reforms the Commission advances would, for starters, make equally good sense here. In fact, one of these reforms — ongoing disclosure of CEO-median worker pay gaps — has already become U.S. law.
But this pay ratio disclosure provision, enacted last year as a little-noticed feature of the celebrated Dodd-Frank financial reform legislation, has not yet gone into effect. Corporate America has unleashed a full-throttled lobbying assault against it, at both the regulatory and legislative levels.
The new UK High Pay Commission final report ought, at the least, help American executive pay reformers save pay ratio disclosure. If that happens, Americans will be better able, as the High Pay Commission puts it, to “move away from an economy predicated on a flow of rewards to the top.”
“A business model where corporate profits accrue in the hands of the few,” the high pay panel sums up, “is deeply flawed and over the long term unsustainable.”