Tuesday, August 18, 2009

High Pay Arguments, Part 1, Top Execs

I've been reading some of the writing on this new high pay commission idea with interest. The main thing that strikes me about it is that there seem to be two quite distinct high paid groups who are quite clearly the target of this campaign. The first is top executives and the second is the high paid group of financial professionals who live in and around the City of London. I think these two groups need to be considered quite separately, so first I'll take a look at top execs.

With the executive class, I feel this is mainly an argument about corruption. Senior executives ultimately control the purse strings and (at least in the case of the largest FTSE companies) the money is not a huge amount in the grand sheme of things. Further to this, there is no real defined level as to what a senior executive should be paid, and no institution exercising any downward pressure. What I'll say further to this is that I don't feel that pay is necessarily tied to ability as Chris Dillow says, there are some smart execs, some stupid ones. I also don't think that this kind of pay is really determined by market forces since there is often very little actual competition (at least from what I've observed) for these roles.

What the argument really boils down to is a moral argument about whether it is right for executives to abuse their position for their own gain. Pay for top execs has risen pretty consistently year on year and well above average wages and (for the most part) at a rate well above that justified by the performance of their companies. Use of a position of authority for one's own gain is corruption, but this corruption is so endemic that there is no longer any outrage about it.

I think this is a situation that needs to be addressed because ultimately, abuse of power is wrong. In terms of solutions, I think we need a better system of holding these people to account. Shareholders are ultimately too diverse, and ultimately not interested in issues of morality. Instead, I would have to say that Chris' suggestion of greater worker empowerment is just about the best way do do it.

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