Technical measures won’t curb pay extravaganza
By Edward Hadas
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
One of the more puzzling British and American trends in the last three decades is the vast increase in the share of national income allocated to the very rich. The High Pay Commission, a non-governmental UK body which published a report on Tuesday, points out that share of British national income garnered by the top 0.1 percent of earners has moved from 1.3 to 6.5 percent since 1979. The Commission has a 12-point plan to change things.
The puzzle is two-fold. First, what caused the shift? Companies may be bigger. But corporate bosses do pretty much what they always did. They are just getting paid much more to do it. At BP, one of the few big British companies with clear records going back to 1979, the top boss received 16 times as much as the average worker in 1979. Last year BP’s “boss-peon” multiple was 63.
Second, why has there been so little public indignation about the pay extravaganza? The report’s forward says “the public is rapidly running out of patience”, but in fact this trend has been in place for decades, was not halted by the recession and has not fired up a mass protest movement. There are rhetorical expressions of outrage from politicians and at the pub, but the British, like the Americans, seem remarkably complacent about the triumph of the elite.
While the why of high executive pay is a mystery, there is no real puzzle about the how. Year after year, boards of directors approve above-inflation pay rises. The High Pay Commission’s proposals are all aimed at throwing grit in the fast-moving remuneration wheels. They are mostly worthy and reasonable – more disclosure, more shareholder and employee say, fewer conflicts of interest.
But the rich, a group which includes most board members and shareholder representatives, knows how to take care of its own. New rules can easily be twisted or neutered. A trend as well established as this can be halted only by a new social attitude. When pay-bashing becomes a serious vote-winning issue, things will change. Until then, reformers are unlikely to make much progress.