The Guardian's reporting:
Nick Clegg has committed the government to a crackdown on excessive executive pay, saying that austerity in the public sector had to be balanced by curbs on "irresponsible and unjustifiable" pay rises in the private sector.
The deputy prime minister said that ministers would publish firm proposals next month, and the government was willing to legislate if necessary on measures that could include forcing firms to let workers sit on the remuneration committees setting pay rates for top executives
I'm all for employees on the board of a company - and the remuneration committee. I have been for a long time. But I have to presume Nick Clegg is either stupid or thinks we are if he really thinks this will change top pay.
The worker on the committee will always be outnumbered - probably 4 to 1 at least on most such committees. What chance have they got of changing things? About the square toot of not a lot I'd say.
In which case real change is needed to stop the abuse that is going on that is destroying capitalism from within by spreading corruption like a cancer within it.
Four things can work.
First, a 'top to bottom' pay ratio.
Second, banning all corporate tax relief on salary and remuneration packages over £250,000, increasing the cost of paying them and removing tax[ayer subsidy from high pay.
Third, and most important, banning incentives that relate to post tax cash flow earnings that have the effect of encouraging tax avoidance by multinational corporations. These have explained the boom in tax abuse.
Last, banning of bonuses, however earned of more than 100% basic pay (itself pegged by an earnings ratio cap) by applying a 100% tax on all bonuses.
Those are real policies to end abuse.
Clegg's is not.
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with respect RM, you are not going to achieve anything with your third point.
to fix that you need to get the brokers to disregard their beloved earnings per share performance indicator (which as you know is profit after tax divided by the number of shares), reduce the tax charge and push the EPS number up.
Im also slightly confused by whether all the discussion is just about listed groups or corporations (eg OMB’s) more generally?
But as I can’t force a change in EPS and can make options based on post tax earnings illegal my option clearly does work and yours is designed to prevent change
I appreciate you admitting that this is the issue though
Interesting! Just how is high pay subsidized by the taxpayer? Are you in fact saying that all private sectors workers employed by a tax paying entity are having their pay subsidized by the state?
Also, if you wish to attack pay over 250K, how would you balance the books when public sector workers are receiving a package over 250K? A supertax on the wealthy public sector employees?
I have serious reservations about those earning more than £250,000 in the state sector
The BBC apart and some exceptional cases in councils very few do
I do think a penalty may need to be considered, yes
Re subsidy: if a salary of £300,000 is paid and the corporation tax rate is 25% the subsidy is £75,000. I am suggesting that at about £250,000 pay ceases to be pay and economically becomes rent. And I see no justification for that, so withdrawing tax reief on the excess of £50,000 would increase the cost of paying it by £12,500 and so reduce pay differentials
The problem here is that employee expenditure is a cost of trading and therefore goes to the heart of ascertaining trading income and therefore profits. It is incorrect to say that the deductibility of employee costs is tax relief.
Or are you saying that gross income is taxable by the state and that any trading expenditure such as wages/salaries, rentals, cost of sales etc etc are tax relief? Certainly this isn’t the case in the UK.
Any amendment to CIT would be regarded as wholly arbitrary and as interfering with a fundamental of taxation of profits. Anyway, even if it did occur, the corporations would merely indulge in some form of income shifting.
Your suggestion will never see the light of day. It would be interesting to see, however, what the reaction would be if HMRC were to attack excessive pay on the grounds that such expenditure was not wholly and exclusively incurred in the production of profits.
Where do you stop, do you cap rental, for example, on the grounds that the corporation could make do with less expensive premises? Cut down on smart office furniture, disallow any airfares above economy class.
Absolutely not true
Many things that are a cost of doing business are not tax deductible
So all reliefs are by concession and therefore a subsidy
That is the case in the UK, de facto if not de jure
Your argument is simply wrong
i have seen instances where HMRC have questioned the expenses associated with an expensive car driven by a director (it was an aston martin) on the basis it wasnt “wholly and exclusively”- so the precedent is there for this sort of thing.
Hi Richard, I like the way you are thinking. What would be your response to the standard retorts that “this will drive our executives overseas” or “how do we reward our CEOs, if we don’t allow bonuses”?
Regarding your measures, I think these also need to be applied to the pollies and public service bureaucrats as well. I’m not sure about the U.K., but in Australia, we have the remunerations tribunal that sets the pay for department and govt agency chiefs as well as politicians. We are all being told to tighten our belts here, and then we see these fat cats (who are on extraordinary salaries and benefits) get pay rises in excess of 30%. When they are criticised they automatically point the finger at their supposedly independant paymaster – the remunerations tribunal. They are just playing us for fools.
Talent is much more common than perception suggests
I do not think there is a shortage of it
If it were so rare CEOs would stay in jobs for longer than 3.5 yrs on average
As it is that is all the time it takes for them to now accumulate more wealth than they could ever have dreamed of and retire
This is not about talent, but fleecing the system
If a government really wanted to put an end to excessive pay it could do so at a stroke. Re-introduce a super-tax at 85% of all income over, say, ten time median (that’s your £250000) and nobody would base a high paying job in the UK. Of course when we used to have this everyone who could just buggered off abroad. John Lennon and David Hockney weren’t in New York just because they liked “the Scene”. The Scene was in New York because nobody who was making any money wanted to be in London.
Pay is not the same as self employed income
Which is precisely what is wrong with your argument and why I did not suggest it
If you’d like to address the issues and not your hatred and envy please try again
this comes back to my earlier question – is this proposal limited only to listed companies? or does it also include owner managed businesses (some of which are extremely large)
All
Why not?
The excess in unlisted is always dividends anyway
I have no need to be jealous. As a professional engineer (now retired) I regularly made more than the sums that I suggested and so would have been capped. Nor do I hate anyone. However, whether it is pay or self-employed income, it is still subject to income tax and it would be quite simple to put a ceiling on it if that was what was wanted.
in that case dont all the OMB’s just convert to LLP structures and then their income is self employed income and thus outside your cap (I assume you made the distinction between pay and self employed income as self employed income would be outside the scope of the pay cap)
But as I noted – this is rarely n issue in OMB as they can pay dividends now….
im confused – so you object to someone drawing a big salary, but you dont object to someone getting exactly the same cash but by drawing a dividend – i thought the issue was the relative size of reward at the top compared to the bottom?
Of course Clegg thinks we are stupid, probably most of the political and economic elites have the same opinion of the general population. These elites still have not come to terms with the fact that in the age of the internet there can be no secrets about the exercise of political power for the benefit of the few, the waging of unecessary wars and other matters. Back to Clegg, he does seem to have an inflated sense of his own importance but I rarely listen to anything which he says. I certainly will not be voting for his party at anytime in the future and I expect other people will share my voting intentions.
You don’t address the consequences or practicalities of your policies. Faced with the top to bottom ratio firms will simply contract out all the low paid work to third parties. Banning corporation tax relief will just give rise to complex arrangements using offshore companies or certain offices will be relocated. Your third point seems to suggest that incentivising managers to improve cash flow is a bad thing because in some cases it leads to tax avoidance. This reveals your obsession with tax avoidance as what the UK needs now is positive cash flow to invest in research, equipment etc. Cash flow is a much better measure of success over the medium term than profits which can be manipulated.
You are fundamentally wrong in thinking that you can legislate away high executive pay – it will just create more business for lawyers and tax accountants. What is needed is a groundswell of public pressure. Unfortunately most of the public actually don’t care that much. Until they do nothing much will change.
I have thought about this ratio of top to bottom and my concern was that firms would say make the cleaners go self employed so remove them from he ratio and then “contract” them in. Can you see ways ound this.
Yes!
Reduce the ratio!
They do that all the time.
But HMRC have certain conditions attached to self-employment.
The construction industry has been using bogus-self-employment for donkeys years, and the revenue regularly stamp-down on it, to the cost of the companies relying on not-really-self-employed workers.
http://money.aol.co.uk/2011/12/05/can-fraudsters-pay-to-avoid-court/