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You can find the current article at its original source at https://www.theguardian.com/commentisfree/2016/nov/29/the-guardian-view-on-british-business-stop-stroking-the-fat-cats
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| The Guardian view on British business: stop stroking the fat cats The Guardian view on British business: stop stroking the fat cats | |
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| As important as the detail of the government’s proposals to change the way big businesses are run is the context. Today’s green paper comes in the year of Brexit and Donald Trump, at a time when voters, as Theresa May recently said, “see the emergence of a new global elite who sometimes seem to play by a different set of rules and whose lives are far removed from their everyday existence”. Well ensconced in that global elite are the chief executives of major companies. Think of Philip Green, whom MPs have accused of letting BHS die. Think of Mike Ashley, apologising for staff mistreatment at Sports Direct. Think of all those bumper pay deals at FTSE 100 firms. | As important as the detail of the government’s proposals to change the way big businesses are run is the context. Today’s green paper comes in the year of Brexit and Donald Trump, at a time when voters, as Theresa May recently said, “see the emergence of a new global elite who sometimes seem to play by a different set of rules and whose lives are far removed from their everyday existence”. Well ensconced in that global elite are the chief executives of major companies. Think of Philip Green, whom MPs have accused of letting BHS die. Think of Mike Ashley, apologising for staff mistreatment at Sports Direct. Think of all those bumper pay deals at FTSE 100 firms. |
| As the High Pay Centre points out, the average FTSE 100 CEO is now earning as much as 147 of their own employees. The average CEO pay package comes in at £5.5m a year. Those are just the front-page stories: leaf through the business section of any paper and chances are it will contain some tale of fat-cattery. Crucially, all this is happening in the middle of the sharpest pay squeeze for 70 years and historic spending cuts. | As the High Pay Centre points out, the average FTSE 100 CEO is now earning as much as 147 of their own employees. The average CEO pay package comes in at £5.5m a year. Those are just the front-page stories: leaf through the business section of any paper and chances are it will contain some tale of fat-cattery. Crucially, all this is happening in the middle of the sharpest pay squeeze for 70 years and historic spending cuts. |
| No wonder politicians are seeking to respond to this new public restiveness. The resulting alliances can sometimes be odd indeed: American resentment against the elites has been successfully channelled by a billionaire who lives in a Manhattan tower complete with a gold lift. In Britain, the applicants for people’s tribune include a former private-schoolboy turned City trader, Nigel Farage, whose current day job is based in either Brussels or Strasbourg. A couple of years ago, the notion that workers might have a say on the pay of their CEO would have been dismissed as Marxist or, at the very least, Miliband-ite. Now it comes from the leader of the party of businesses and free markets. | No wonder politicians are seeking to respond to this new public restiveness. The resulting alliances can sometimes be odd indeed: American resentment against the elites has been successfully channelled by a billionaire who lives in a Manhattan tower complete with a gold lift. In Britain, the applicants for people’s tribune include a former private-schoolboy turned City trader, Nigel Farage, whose current day job is based in either Brussels or Strasbourg. A couple of years ago, the notion that workers might have a say on the pay of their CEO would have been dismissed as Marxist or, at the very least, Miliband-ite. Now it comes from the leader of the party of businesses and free markets. |
| For anyone less interested in the provenance of these ideas than in how far they might go, this is encouraging. At last, the idea that company directors will act purely according to enlightened self-interest is on its deathbed. About time, too. But there is still a lot more ground to cover. When Mrs May was running for Conservative party leader, she pledged that workers would sit on company boards. Five months later, that promise has been ditched for an option that the committee setting CEO pay will “consult shareholders and the wider company workforce”. As policies go, that is very weak tea. Any further backtracking would render laughable Mrs May’s claims to side with working families. | For anyone less interested in the provenance of these ideas than in how far they might go, this is encouraging. At last, the idea that company directors will act purely according to enlightened self-interest is on its deathbed. About time, too. But there is still a lot more ground to cover. When Mrs May was running for Conservative party leader, she pledged that workers would sit on company boards. Five months later, that promise has been ditched for an option that the committee setting CEO pay will “consult shareholders and the wider company workforce”. As policies go, that is very weak tea. Any further backtracking would render laughable Mrs May’s claims to side with working families. |
| Other ideas from the government include publishing pay ratios “comparing CEO pay to pay in the wider workforce”. This is a small but necessary step towards greater transparency. It was always puzzling to hear former business secretary Vince Cable’s argument that this would make Goldman Sachs, with its phalanxes of well-paid bankers, look fairer than Waitrose and its lower-paid till assistants. Anyone who can read a company report will be able to tell the difference between a supermarket and an investment bank. What would also be worth publishing is a comparison with both the lowest-paid company workers and the median national wage (according to official statistics, that is currently £28,213 a year). | Other ideas from the government include publishing pay ratios “comparing CEO pay to pay in the wider workforce”. This is a small but necessary step towards greater transparency. It was always puzzling to hear former business secretary Vince Cable’s argument that this would make Goldman Sachs, with its phalanxes of well-paid bankers, look fairer than Waitrose and its lower-paid till assistants. Anyone who can read a company report will be able to tell the difference between a supermarket and an investment bank. What would also be worth publishing is a comparison with both the lowest-paid company workers and the median national wage (according to official statistics, that is currently £28,213 a year). |
| Sunlight is a good disinfectant, but a few other cleaning solutions wouldn’t hurt. Rather than workers being consulted on management’s terms, even better would be to roll back some of the trade union laws and allow unions on to business premises to recruit new members. Similarly, the notion that all that’s wrong with British business is generous pay deals for a cosy clique who sit on each other’s committees is, while catchy, wrong. Big business in Britain doesn’t invest enough in kit, in training, or in research and development. Instead, it hands money back to shareholders, who typically include the CEO. This process, known as “financialisation”, effectively turns big companies into piggy banks, to be turned upside down and shaken hard for any loose change. It is a practice that cripples the British economy, and it is forbidden by section 172 of the 2006 Companies Act, which says a company director must “have regard” to “the likely consequences of any decision in the long term”, as well as “the interests of … employees … suppliers, customers and others”. | Sunlight is a good disinfectant, but a few other cleaning solutions wouldn’t hurt. Rather than workers being consulted on management’s terms, even better would be to roll back some of the trade union laws and allow unions on to business premises to recruit new members. Similarly, the notion that all that’s wrong with British business is generous pay deals for a cosy clique who sit on each other’s committees is, while catchy, wrong. Big business in Britain doesn’t invest enough in kit, in training, or in research and development. Instead, it hands money back to shareholders, who typically include the CEO. This process, known as “financialisation”, effectively turns big companies into piggy banks, to be turned upside down and shaken hard for any loose change. It is a practice that cripples the British economy, and it is forbidden by section 172 of the 2006 Companies Act, which says a company director must “have regard” to “the likely consequences of any decision in the long term”, as well as “the interests of … employees … suppliers, customers and others”. |
| Less informed defenders of bad company practice sometimes say that bosses cannot treat workers fairly because they have a “fiduciary duty” to return maximum cash to shareholders. They are flat wrong. We have some of the right laws already. What’s needed is to enforce them. | Less informed defenders of bad company practice sometimes say that bosses cannot treat workers fairly because they have a “fiduciary duty” to return maximum cash to shareholders. They are flat wrong. We have some of the right laws already. What’s needed is to enforce them. |
| • This article was amended on 30 November 2016. An earlier version said the median CEO pay package was £5.5m a year. That is the average. | • This article was amended on 30 November 2016. An earlier version said the median CEO pay package was £5.5m a year. That is the average. |