“If they all want to work in a workers co-operative everybody can move to Cuba.”

24th November, 2011 by Lorna Gledhill

It’s time to thank Radio Four’s Today programme for providing some of the most entertaining morning radio this month. Yesterday’s show saw John Humphrys interview Dr Heather McGregor, the director of headhunting firm Taylor Bennett, and Deborah Hargreaves, the chair of the High Pay Commission, about executive pay.

Executive pay is awarded to the highest-ranking corporate officials within a company. Their salary is made up of a basic rate, topped with a bonus, which is often part of a long-term incentive plan that includes other highly valued perks. Executive pay in the UK is significantly higher than that in the rest of Europe and the last 30 years has seen a 55% increase in boardroom remuneration, creating what Deborah Hargreaves describes a salary ‘arms’ race’ where companies struggle to award their executives with increasingly attractive packages. Barclays gave its bankers three times as much in bonuses as it paid investors in dividends and the Financial Services Authority (FSA) revealed that 2,800 staff in 27 different banks received more than £1 million salary in 2009. If current trends continue, 2025 will see the top fraction of earners taking home a tenth of the UK’s national income. By 2030, we should expect to see levels of inequality similar to those of Victorian England.

Dr Heather McGregor, as the director of a large company, is probably not struggling with higher costs of living. She’s probably not worrying about cuts to public services, because she can afford private ones. So as executive pay rockets, it’s unsurprising that McGregor may not be so keen to heed the advice of the High Pay Commission. Yet her comments, or her “wit and wisdom” in the words of the Guardian, were horrific.

In response to John Humphrys asking her whether executive pay matters to shareholders and workers alike, she replied “I think that the people who should set the pay, for the people at the top of companies […] are the people that own those companies.” So, shareholders, often pensioners and ordinary savers with shares in numerous companies, are the people responsible for setting the pay for their highest staff. Whilst the logic of this statement may not shock you – of course those who ‘own’ the company should have influence over the pay of their ‘employees’ – things are not that simple. These thousands of shareholders cannot be expected to be responsible for the regulation of CEOs’ wages. In a globalised, un-regulated market, most executives themselves have the last say over their own salaries.

Currently, regulation of top pay in publicly listed UK companies is based on a ‘comply or explain’ corporate governance model that requires the following tripartite structure: the establishment of a remuneration committee on every board, disclosure, and a shareholder vote on pay. McGregor, however, was quick to shout down John Humphrys’ statement that the members of the remuneration committees are all “members of the same kinda clubs.” Unfortunately, it does seem that “most non-executives tend to be serving or former senior executives from other companies” and consequently may have a somewhat biased opinion regarding top-level pay. So, after considering the fact that “the shareholder vote is purely advisory” and remuneration committees are populated by the ‘old-guard’, it is unsurprising that executive pay is rocketing.

What makes McGregor’s comments so offensive is her complete disregard of the rights and interests of workers within large companies. According to her, workers at these companies should not have any say in the payment packages of their CEOs. The average worker has the same capacity for responsibility as a young child:

“John, you have young children, you would not give your children a say in how much money you allocate yourself every year for clothes or for haircuts.”

Aside from being painfully patronising, McGregor’s analogy is completely flawed. Frankly, if by some terrifying blip in employment law your young children were contributing to the family income, wouldn’t you expect them to want some say over the distribution of money earned? The relationship between employers and employees is far from paternal; employees contribute to the financial success of the company as much as those at the top. To say that ‘average’ workers are undeserving of a voice in the higher echelons of business is not much more than blatant exploitation and elitism.

The 0.1% top earners are made up of the familiar suspects: finance workers (30%), those working in business (38%) and company directors (34%). Executives in the FTSE 100 even received a lovely 3% increase in their basic salary, compared with the miniscule 0.1% increase for the average wage. With the average total remuneration of FTSE 100 chief executives at over £4.2 million, some of these individuals earn enough to put them in the top 0.01% of the population.

This 0.1%, or even 0.01%, of the population have benefited from governments that are unwilling to confront the myths that compound hyperbolic executive pay. The supposed ‘labour market’ of executives and fear of cross-company ‘poaching’ is unfounded. The High Pay Commission concluded, “global mobility [of those in top positions] is limited by human habit and behaviour” and that the number of CEOs ‘poached’ in the last five years is incredibly low. There is undeniable cronyism in the traditionally high earning sectors and a destructive focus on extreme individualism. When value is only considered in financial terms, quality of life is determined solely by what you earn and own.

To question this, unfortunately for Dr Heather McGregor, is not an attack on the ‘free market economy’. You cannot divert a crucial restructuring of exploitative corporative practice by playing the age-old communism card:

“We do not operate workers co-operatives. If they all want to work in a workers co-operative everybody can move to Cuba. These companies are owned by their shareholders, and it is the shareholders who should have the say on executive pay and not the workers.”

To ask for lower-waged workers to be on remuneration boards is not akin to starting a workers’ co-operative and workers’ co-operatives are not the same thing as communism. In the same way that higher taxes for the super rich and the introduction of a Tobin Tax will not force executives to flee to Monaco, the operation of a responsible and equal pay system within corporations will not turn the UK into Cuba.

Dr Heather McGregor’s headhunting firm claims to hold strong values of “integrity, objectivity and excellence.” I’d beg to differ.

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