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Can Shareholders Stop Over-the-Top CEO Pay?
This year, for the first time, shareholders in the United States can vote on CEO pay. UK shareholders have had that right since 2002, but it hasn't slowed CEO pay excess. A new UK High Pay Commission report explores why.
Research & Commentary
May 18, 2011
Only one other nation in the world has CEO’s nearly as overpaid as the United States. In that one nation, the UK, basic salaries for top corporate executives last year increased 30 times faster than the average national wage.
Corporate execs currently make up about 34 percent of Britain’s most highly paid 0.1 percent, those 47,000 financially favored souls who annually take home over £350,000, the equivalent of just over $565,000.
But here’s the particularly distressing news — for Americans — in these figures: Britain already has in place shareholder “say on pay,” the CEO pay reform that U.S. pay reformers have long considered the key to stopping CEO pay excess.
In Britain, where “say on pay” has been on the books since 2002, that stopping hasn’t happened. And no one has seen much slowing either, as a new report — from a blue-ribbon UK panel called the High Pay Commission — has just detailed.
“Existing attempts to rein in top pay,” the new Commission report noted earlier this month, “have not worked.”
The UK’s High Pay Commission launched last November, as a project of the London think tank Compass and the Joseph Rowntree Charitable Trust. Its chair, Deborah Hargreaves, formerly served as the business editor at the Guardian, one of the UK’s top dailies, and the news editor at the influential Financial Times.
Among her fellow commissioners: an executive at a major British pension fund, a leading financial expert in the House of Lords, a big-time asset manager, a top theologian, and the deputy general secretary of the British labor movement.
These commissioners are billing their new paper — More for Less: what has happened to pay at the top and does it matter? — as an “interim report” that “acts as an audit” on the ongoing debate over the reality and the impact of “high pay,” wherever in Britain this excess may appear.
And this excess, the Commission’s interim report makes clear, has become incredibly pronounced, over recent years, in the UK’s executive suites. Between 1949 and 1979, British executive pay increased by just a 0.8 percent annual rate. The average rate over the last ten years: nearly 7 percent.
For most of those ten years, UK shareholders have had the right to take advisory votes on CEO pay packages, a right that U.S. shareholders also now enjoy, thanks to last year’s Dodd-Frank financial reform law.
In the UK, the High Pay Commission points out, shareholder say on pay “has led to a greater involvement of the larger investors in remuneration decisions and has resulted in a number of embarrassing votes for companies.”
But shareholder “say on pay” has not prevented a growing greed grab at the UK’s corporate summit. Top UK execs have essentially spit in shareholder faces. They’ve collected super rewards while delivering less than super “performance.”
One telling statistical contrast: Among the UK’s top 100 companies, earnings per share — a prime yardstick of the “performance” shareholders prize — dropped an average annual 1 percent between 1998 and 2009. Yet the chief execs of these 100 firms saw their pay, over this same span, jump 6.7 percent a year.
The new High Pay Commission interim report explores a variety of reasons that may explain why “say on pay” has so far been ineffectual. What reforms might make more of an impact? This High Pay Commission report doesn’t say.
The next — and final — High Pay Commission report, due in November, will. Reformers, on both sides of the Atlantic, will be paying close attention.
Sam Pizzigati co-edits Inequality.org. Among his books on maldistributed income and wealth: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970. His latest book, The Case for a Maximum Wage, will appear this spring. Follow him at @Too_Much_Online.