We’ve come a long way since Peter Mandelson declared New Labour was intensely relaxed about people getting filthy rich. The Labour party, the Lib Dems – even the Tories – are getting stuck in. It was a huge topic at Davos.
The consensus – on both sides of the Atlantic – seems to be that boardrooms need to get a handle on exec pay.
What should we do? Let workers decide pay levels? Should the shareholders hold more sway? Should we scrap bonuses altogether – as Simon Jenkins advocates in The Guardian? Do we just need a more transparent system? With executive pay still soaring, the politicians argue the market has been proven to be bust.
I don’t think we should do anything.
Pay may be very high. Very high pay may be increasing but that doesn’t mean the market’s operating uncompetitively.
I think UK executive pay is still rising because remuneration has yet to climb to its market rate.
You need only look to the States to see what I mean. John Browett, until recently the chief executive of Dixons Retail, who ran Currys and PC World, certainly did. He has just been poached by Apple to run its global retail arm.
The cynics look the other way, to the continent. Pay is lower there, certainly, but that doesn’t mean we’ve got it wrong. Just ask Jose Antonio Horta-Osorio.
To be honest though, I don’t think international poaching is the threat to talent it’s cooked up to be. There won’t be a massive exodus CEOs and top execs if UK pay levels fall, or if the opprobrium attached to performance related pay packages gets too bad –I don’t think many CEOs are that mobile.
It might get harder to woo executives in the first place certainly (who’d sign up to be CEO of RBS now?) but Mr Browett and Mr Horta-Osorio are the exception, not the rule.
If the level of executive pay is restricted, or if bonuses become harder to award, or the opprobrium related to competitive pay-packets become too enormous, I think the real danger is that directors will move from UK quoted companies to those backed by private equity.
Those firms will reward performance more effectively and therefore attract the best executives.
According to research carried out by private equity search firm Directorbank and non-executive head-hunter Hanson Green in a report Life in The Boardroom, the Chairmen of private equity backed companies are already paid 12% more than those in publicly listed companies.
The only difference is that the public can’t see that. Because remuneration in private equity backed companies is far less transparent than in UK listed companies.
Not sure my argument stacks up? Ask yourself what sort of bonus Phillip Monks, Aldermore's Chief Executive got last year. You have no idea because he’s chosen to work at a private equity backed company.
Smart chap.
