Posted on

Question: What's £757,000?

Answer: The average earnings of a partner in PWC in the UK last year.

Justification: There isn't one.

Why?: They take no risk. PWC cannot fail. It's the biggest firm of accountants in the world. The collective governments of the world cannot see it disappear; ergo, there is no downside risk. In that case their should be no risk premium in their pay.

Compare with: National minimum wage, £5.35 an hour. Assume a working week of 60 hours (I accept partners put in time, whether productively or not) and annual pay is £16,692. Reward ratio. 45: 1.

Alternatives: There should be a reward disparity. More than 100 years ago JP Morgan said no company should have a differential between highest paid and lowest paid greater than 10. So what's wrong with being paid £166,692 per annum? Well, nothing. But let's allow for inflation. Make it 20 times. If you can't live on £330,000 you're not fit to run a major accounting firm: you don't know how to budget.

Problems?: In the self perpetuating game of executive pay it would be claimed that this would drain talent from these firms.

Solution: Correct the failure of the market using a) tax b) regulation.

Consequences? None. Almost no UK senior management are in demand abroad. These people are much less mobile then they like to think.

Action required: Yes.

When: Now.