Bosses 'do not deserve bumper pay packets', study finds

[davieG]

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.

Will Goodhart, head of CFA UK, said: "Too few of today's popular approaches ... genuinely align senior executives' pay with the economic value that they create."

Chief executives of companies in the health care sector were the best paid, on an average of £2.9m, with those in the "basic materials" and oil and gas sectors on £2.2m, and telecommunications at £2.1m.

Bosses in the lowest-paid sectors included technology on £1.3m and industrials (£1.1m), which the authors said were "hardly trivial amounts but significantly lower nonetheless".

The study comes after government outlined its plans to make companies justify high levels of executive pay in November.

Pay ratios

Prime Minister Theresa May said she wanted to stop an "irresponsible minority" of companies acting badly and ensure "everybody plays by the same rules".

Among the measures under consideration are pay ratios, which would show the gap in earnings between the chief executive and an average employee.

Shareholders would also be handed more powers to vote against bosses' pay - although an earlier proposal to force companies to put workers on boards was dropped.

According to a recent study by Vlerick Business School, UK executive pay is the most generous in Europe. Chief executives are paid on average 50% more than in Germany, the next best-paying country.

'Business as usual'

However, shareholders are increasingly hitting out at excessive pay, with investors in BP, Smith & Nephew and Anglo American all voting against deals this year.

Image copyrightGETTY IMAGES

Image captionHelena Morrissey is critical of high executive pay

Helena Morrissey, chair of Newton Investment Management who was guest editor of BBC Radio 4's Today programme on Wednesday, said lessons from the financial crisis had not been learned.

"Despite acknowledging that group-think played a big role in causing the financial crisis, many of those at the top seem to have either been oblivious or dismissive of the risks of the widening gulf," she said.

"Executive pay has kept on rising, and leaders have behaved as if it were business as usual."

Mrs Morrissey added that the votes for Brexit and President-elect Donald Trump could not be dismissed as populism, and that too many business and political leaders operated in "a narrow comfort zone".

The Brexit supporter described her "public humiliation" at one meeting after the referendum where she was accused by a colleague of ruining the economy for the next decade: "I was regarded as something of a heretic. The system doesn't encourage people to challenge."

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[TAFKA Castroneves]

This really is the massive problem with the more larger corportations out there, the expectation (or perhaps intention would be a better word) for those at the top of big buisness is that every year without fail they get more - and it's very apparent that is the main issue that they are interested in - it really doesn't matter how well a company performs, or even how good of a job they do (the banks proved that in the year of crisis) they still want more personal money in their pockets. If they don't get their money at the top, the people down the bottom are the ones who cop it - less hours, less money put into maintaning the company, job losses. Now I personally don't know what the answer is so I won't go on too much as I can't offer a solution at this time, it's not as easy as the government enforcing things to be performance based - performance can be hidden and skewed behind all sorts of varied methods. No doubt more BHS scenarios will come about as a result and then everyone's going to be screwed, this balance is incredibly difficult to manage.

 

Gotta love McDonalds though, so fast food workers go on strike in the states demanding more money - I remember the New Yorkers inparticular out there protesting about it - so what happened? They got their wish and then the company took the decision to launch a worldwide new structure for their stores that saw a reduction in workers per store - they aren't paying any more, they are paying the same (or less) and just employing less. Pretty sure that move will earn a CEO a nice paycheck. Once again I don't know the answer to this, it's an observation - but long term it's a problem.

 

It's like the cake shop that is setup by someone who likes making excellent cakes, everyone loves buying the cakes because they are good so it makes lots of money - then it expands, gets floated on the stock exchange and grows new stores - but has shareholders involved in it who have no interest in cake at all - just money - and that's when it all becomes about making money and not actually about making good cakes.

 

Like I said before I don't know the answer its just a few observations.

[davieG]

I was involved in a bonus scheme once where everyone from top to bottom got paid the same % bonus based on the same criteria.

 

So if the directors got 5% everyone got 5% surely that is a much fairer system the guys at the top still get substantially more cash in their pockets but at least the bog cleaner got a share as a % of their wage.

 

Back before my time when companies were owned by a single person or a family they may not have paid much but at least in many cases they where philanthropic and funded local amenities some like Rowntrees and Bournvile even had on site doctors, dentists, sports facilities etc.

 

Even when I started work there was on onsite nurse until a new MD decided to save money and did away with it using volunteer first aiders instead. Organisations may have been forced to provide a much safer working environment but the price for this has been a vast reduction in other onsite facilities as they have been cut to the bone in the pursuit of an ongoing need to produce a bigger profit year on year as it's seen as failure not to do so. 

[Stadt]

Reads like a headline from the game Pandemic 

[Izzy]

1 hour ago, davieG said:

I was involved in a bonus scheme once where everyone from top to bottom got paid the same % bonus based on the same criteria.

 

So if the directors got 5% everyone got 5% surely that is a much fairer system the guys at the top still get substantially more cash in their pockets but at least the bog cleaner got a share as a % of their wage.

 

Back before my time when companies were owned by a single person or a family they may not have paid much but at least in many cases they where philanthropic and funded local amenities some like Rowntrees and Bournvile even had on site doctors, dentists, sports facilities etc.

 

Even when I started work there was on onsite nurse until a new MD decided to save money and did away with it using volunteer first aiders instead. Organisations may have been forced to provide a much safer working environment but the price for this has been a vast reduction in other onsite facilities as they have been cut to the bone in the pursuit of an ongoing need to produce a bigger profit year on year as it's seen as failure not to do so. 

I agree the same % bonus scheme is a fair system. Many large companies pay up to 50% bonus on top of basic pay providing individual and company objectives are met. Some may refer to this as 'golden handcuffs' but it's probably the best option.

 

In terms of onsite facilities for workers, yes there are some examples of where these have been cut but there are also examples of big corporates who do this very well. I'm lucky to work with some big Tech businesses in London and they provide onsite crèches, doctors, dentists, gym, free food and massages to name but a few benefits. The staff feel valued and therefore show loyalty. It's not rocket science I guess..

 

But above fat cat bonuses, pay and benefits, the main reason people leave their jobs is lack of recognition and poor relationship with line Manager - both of which cost nothing.

 

Personally I don't have an issue with Execs earning big money providing they treat the workforce with respect and fairness. People who work for 'great' companies generally don't have an issue with how much their senior leaders get paid funnily enough. In fact they often see it as something to aspire to, rather than be resentful of..

 

 

[Barky]

Wouldn't mind the big exec pay if it was more of a meritocracy but the reality is unless you're from the right 'elite' background you have practically zero chance of ever getting one of those jobs, regardless of how capable you are. Jobs at that level are a closed shop, almost cult-like in the way they refuse entry to outsiders, and they all work together to drive up market rates for each other's services.

 

In some ways fair play to them, they are playing the game and playing it very successfully. In other ways, they're a disgrace and need to be brought down.

[Izzy]

7 minutes ago, Barky said:

Wouldn't mind the big exec pay if it was more of a meritocracy but the reality is unless you're from the right 'elite' background you have practically zero chance of ever getting one of those jobs, regardless of how capable you are. Jobs at that level are a closed shop, almost cult-like in the way they refuse entry to outsiders, and they all work together to drive up market rates for each other's services.

 

In some ways fair play to them, they are playing the game and playing it very successfully. In other ways, they're a disgrace and need to be brought down.

Sounds like you've got some pretty strong beliefs around this - fair play.

 

But I would say that not every top Exec comes from the right 'elite' background though. There are many examples of CEO's who've worked their way up from the shop floor to the boardroom from humble backgrounds with no qualifications. 

 

And you're right, it is a game. But 'life is a game' as someone once said. I see many 'victims' in life who don't participate in the game, but instead just throw jealous insults from the sidelines.

 

But I've got big respect for some of the top Execs I work with. Beneath the ego, bravado and polished performance they're just vulnerable humans like the rest of us. Many of them are workaholics and married to their jobs and carry huge responsibility- which is why they're rewarded the way they are.

 

And interestingly I see more 'happy' people on the shop floor than I do in the boardroom. Senior guys might earn big bucks but they're mostly miserable in my day to day experience. Working 70+ hour weeks, don't see their privately educated kids and are a heart attack waiting to happen. 

 

I'm not a big fan of all the generalisations in these type of reports either. In life there are good guys and bad guys, good companies and bad companies. I don't think we need to bring THEM down, and they're not ALL a disgrace either.

 

 

 

 

[Sharpe's Fox]

 

You can see in this graph how the share of wealth in the top percentage of earners is now reaching Edwardian levels of inequality. The turning point here is clear to see, I wonder what political figure could have instigated such a trend? Anyway away from handbags and milk snatching it should be obvious that there is gross inequality in the economic system that has been rigidly supported by the status quo.

[ozleicester]

Been advocating for change for years... its easy and "they" can still reap the rewards.

 

easy answer that even suits the Capitalists....

 

Make the "boss's" wage set at ..lets say 20 times that of the companies lowest paid...eg,

Cleaner earns $25,000

Boss earns $500,000

But any pay rise is also equal, so boss gets $10,000 increase.. so does cleaner

[SMX11]

4 hours ago, ozleicester said:

Been advocating for change for years... its easy and "they" can still reap the rewards.

 

easy answer that even suits the Capitalists....

 

Make the "boss's" wage set at ..lets say 20 times that of the companies lowest paid...eg,

Cleaner earns $25,000

Boss earns $500,000

But any pay rise is also equal, so boss gets $10,000 increase.. so does cleaner

With all due respect how could you possibly justify giving such a salary rise to a low skilled worker as a cleaner?

 

The obessation with equality of outcomes is so illogical in my view. People have different skill levels, experience, work rate and value of work. If you base your wage structure on envy then you will go out of business very quickly.

 

Do some CEO's justify their paypacket? Probably not but if it is in the private sector it is no business of the governement.

[leicsmac]

8 minutes ago, SMX11 said:

With all due respect how could you possibly justify giving such a salary rise to a low skilled worker as a cleaner?

 

The obessation with equality of outcomes is so illogical in my view. People have different skill levels, experience, work rate and value of work. If you base your wage structure on envy then you will go out of business very quickly.

 

Do some CEO's justify their paypacket? Probably not but if it is in the private sector it is no business of the governement.

It's interesting how much people (the Austrian school in particular) like to attribute evolutionary characteristics to economics based on the idea that "we're all different" and that it's "natural" and that way the market "self corrects". Equality of outcome is always bad because someone always has to win out there in the big bad world.

 

Since when was "natural" always equating to "good"? Considering that to be the case and letting the market freewheel is the illogical thing considering how it often ends IMO. Unless you consider that it ends up that way anyway regardless of how much control you try to exert.

[Parafox]

12 hours ago, Sharpe's Fox said:

 

You can see in this graph how the share of wealth in the top percentage of earners is now reaching Edwardian levels of inequality. The turning point here is clear to see, I wonder what political figure could have instigated such a trend? Anyway away from handbags and milk snatching it should be obvious that there is gross inequality in the economic system that has been rigidly supported by the status quo.

So why doesn't the graph continue beyond 2005 when it's dated 2012, to show what a change happened during the Blair/Milliband years? Maybe nothing much changed?

[Sharpe's Fox]

9 minutes ago, Parafox said:

So why doesn't the graph continue beyond 2005 when it's dated 2012, to show what a change happened during the Blair years? Maybe nothing much changed?

Well yeah I agree with you that Blair mostly employed the same economic strategy as Thatcher to win elections. I'm not so much bashing Tories than I am everyone who agreed with the woman. Its plain to see the difference in the post war consensus of Keynesian policy and that of the neo-liberal consensus that followed since 1979 when it comes to share of income of the 1%. 

[Barky]

5 minutes ago, Sharpe's Fox said:

Well yeah I agree with you that Blair mostly employed the same economic strategy as Thatcher to win elections. I'm not so much bashing Tories than I am everyone who agreed with the woman. Its plain to see the difference in the post war consensus of Keynesian policy and that of the neo-liberal consensus that followed since 1979 when it comes to share of income of the 1%. 

Of course the 1% tend to do better than everyone else. That's why they're in the 1%. The important thing to look at is whether income had grown for everyone.

[ozleicester]

1 hour ago, SMX11 said:

With all due respect how could you possibly justify giving such a salary rise to a low skilled worker as a cleaner?

 

The obessation with equality of outcomes is so illogical in my view. People have different skill levels, experience, work rate and value of work. If you base your wage structure on envy then you will go out of business very quickly.

 

Do some CEO's justify their paypacket? Probably not but if it is in the private sector it is no business of the governement.

Why is the CEO's input of more value than the cleaners, only because we apply a false value to it.

 

It is (IMO) a governments responsibility to ensure its people are not being abused or exploited and as such should prevent it. The CEOs of banks CAUSED the GFC, the goverment allowed the little people to suffer (Austerity the worlds greatest con) rather than punish the bankers.

[Sharpe's Fox]

33 minutes ago, Barky said:

Of course the 1% tend to do better than everyone else. That's why they're in the 1%. The important thing to look at is whether income had grown for everyone.

Then in that case no. You can see above that real income hasn't followed productivity in this country since the eighties

[Webbo]

A top 1% is a mathematical certainty, the the top 1% from this year won't all be the same from last year. Most of the 1% will be there for a year or 2 at most.

[Barky]

11 minutes ago, Sharpe's Fox said:

Then in that case no. You can see above that real income hasn't followed productivity in this country since the eighties

Can't see how that's relevant. I wouldn't expect income to strictly keep pace with manufacturing productivity due to greater automation etc. 

[SMX11]

5 minutes ago, ozleicester said:

Why is the CEO's input of more value than the cleaners, only because we apply a false value to it.

 

It is (IMO) a governments responsibility to ensure its people are not being abused or exploited and as such should prevent it. The CEOs of banks CAUSED the GFC, the goverment allowed the little people to suffer (Austerity the worlds greatest con) rather than punish the bankers.

Value is wholly subjective but I think even you would admit that a CEO has far more responsibilities and influence on the continuing success (or failure) of a company than a cleaner. A cleaner may work long hours and be the best cleaner in the world but the work they do can be satisfactorily done by a large group of people (unless it is something very specialised) and therefore they cannot command the salary of a CEO.

 

I have no sympathy for the big banks but you have to understand that they were only partly to blame. The GFC was a long time coming and the result of a stupid monetary system which seems to be on its last legs and the political interference through deposit guarantees & central banks being in control of interest rates. This creates a huge moral hazard where lending standards of some banks completely evaporate because they know that the government will bail them out and in some cases are encouraged to give loans to individuals who ordinarily would not be eligible. When the interest rates rose all these people that were encouraged to take mortgages at the low rates found themselves unable to pay and the whole thing cascaded from there.  

 

   

[Jon the Hat]

In my experience you have to be lucky (well educated, intelligent), committed (put in the hours / years / travel / time away from family), effective (deliver something to satisfy the board / shareholders) and respected (liked or at least understood by your people / seen to be effective) to be be a good CEO.  Most I have seen are all of these.  Clearly they are also people, and people fail.  Not all companies can achieve their goals, and not every CEO can achieve theirs either.

 

I would also note that the idea that CEOs make up the 1% is unlikely to be correct.  That is generally people who have a lot of assets.

[Webbo]

As an aside, if you look on the main page the title of the thread is abbreviated to "Bosses do not deserve bum"