Prem Sikka is arguing for a maximum wage:
We should limit the maximum remuneration (salary, bonus, share options, pension, perks) for executives at public companies to 10 times the median remuneration in the same company. The proposal would mean that if executives want more they will have to raise workers' remuneration too. This is equitable since workers have helped to create wealth.
The median annual pre-tax income for the UK is about £25,000. If a company mirrored that, then the maximum its executives should be able to collect is about £250,000 - more than enough for a comfortable lifestyle.
It has a lot to commend it.
Enforcement would, of course, be an issue:
If directors violate the norms then the cost of the entire executive remuneration should become ineligible for tax deduction, ie companies will have to pay a higher tax bill. There should also be an equivalent fine on the offending directors. These penalties could create incentives to behave responsibly.
That should deal with that.
And have no doubt: this could over-write all those abusive pay contracts at the stroke of a pen.
Why is it some of us can work out how to do this stuff when the Treasury can't?
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Why is it some of us can work out how to do this stuff when the Treasury can’t?
Perhaps because the government seems to be a retirement home for city deadbeats……..
@richard: because it would stifle innovation and force many back into private ownership? Dividends as well? 🙄
Hmmm…
If this were to happen in the UK, I’d expect anyone reasonably talented to head for a country where they’ll be better paid. As good management is a strategic resource, global regulation of executive pay would be nearly impossible so there would always be somewhere.
Any UK company that cannot work around this rule will lose out, but they still have options. An intelligent response would be to outsource all senior management to an agency, who can hire back to the company all of their senior management at their current salaries. Because the executive agency will only ’employ’ very highly paid staff, 10x median earnings could actually look better than C-level pay as we know it.
Why is it that anyone with a coffee break can work around proposals for dirigiste regulation but no one can beat the ingenuity of the profit incentive without using truncheons?
I doubt this kind of thing can work. The real problem is not that good people are paid high salaries. It’s that inbred public school boys with the right connections can get paid these kind of salaries without being innovative, creative or even halfway competent. How do we make the market work to reward ability when at the moment it seems to only reward failure?
Dennis and Manos
This will affect less than .5% of the UK workforce – probably 0.1%
As James points out – there is no evidence they add value
As for stifling innovation – I have never seen the link between this and cash – and I ran entrepreneurial companies for a long time
As for a brain drain – completely unrealistic – deadbeats go anyway (Deniis: some company excepted!)
Richard
“As for a brain drain – completely unrealistic”
Why do you say that? All the best computer programmers are heading to Canada at the moment because their economic and technological environment is favourable. I know that because I’m heading there too soon. When we had 98pc income tax in the 1970s we lost a lot of highly skilled people.
Peter
a) People have always left
b) All the evidence shows it is not just for money
c) Most come back after a while
d) This limit may be £250,000. You don’t earn that. Nor will 99.9% of people ever do so
Your argument does not stack
As you even admit – you’re leaving for other reasons – like a great infrastructure
Paid for by tax, maybe
Richard
Richard,
a) I’m not sure you appreciate what real brain drain looks like, precisely because a liberal labour market has shielded the UK from that. I come from a place where the best people have left and it is impossible to run a business or improve government back home. No, salaries aren’t the only contributor to the brain drain, far from; but anything that makes it worse is dangerous because past a certain point it is irreversible.
b) Knowing your ambition is unwelcome, and that nobody believes a person can legitimately make a big difference to the bottom line of a company on their own is a good reason to leave anyplace. I’ve left my homeland and one job already over this.
c) Most have come back so far. Be careful when inferring trends from the past, under a liberal policy framework or a lack of alternatives. Will a high-flier with a network abroad rush back to the UK out of nostalgia? And besides, what about the ones that choose not to come in from abroad? Is it British executive jobs for British executives?
d) People who make 50K can still aspire to 500K. Dampening ambition is no way out of the hole the UK is in.
And why are no alternatives being considered here besides the punitive? Why not consider mandating that anything over 250K be paid into a pension fund rather than salaries or bonuses? Would the incentives this would provide be inferior to the pointless politics of a cap?
Manos
Sorry. I don’t buy that
I’ve managed thousands of people in my career
None has ever made £250,000
None ever expected to
They did incredibly valuable work
Let’s live in the real world shall we? One where, for a start, it’s impossible to make that much without exploiting someone else
Richard
Richard,
that’s a very small and sad world. Policies like this will make it the real world, here at least. With respect, you are welcome to it.
Peter, I am also a ‘programmer’ (although I thought we called ourselves software engineers). I remember all the contractors where I worked crying over the introduction of IR35 – all said they were heading abroad – not one did. The only reason why contractors will leave now is because the work has dried up.
I’ve been mulling this one over and whilst I have no problems with people who are really creative and innovative getting very high salaries, I also have to wonder whether running banks is the right job for creative and innovative people. I think we have had as much financial innovation as we can stand! To run banks now we need people who are cautious prudent and good managers, probably not the life and soul of the party. What’s the going rate for this kind of thing? More than I’m on maybe (that’s OK) but not millions. Prem Sikka’s idea may be very good for banks. One thing we have found is that paying vast salaries doesn’t guarantee excellence. It does guarantee greedy people!
I suppose another thing with banks is that they really are bottomless pits of money. The temptation to just tuck in must be almost irresistable to some.
The central conceit of what Prem Sikka is proposing is a maxima of 10x the average wage within a company, but he fails to explain what he means by ‘within’ or ‘company’.
At the simplest level such a scheme would lead to poorer paid staff being replaced by sub-contractors paying even lower wages.
Does he mean within a company or a group of companies? Does he mean the average of wages worldwide or just in the UK? The idea, although cuddly, is not thought through.
The main problem with banks, as James Robertson has stated, is that they are getting their main materials for free, so they are inherently more profitable than ordinary businesses. (This also applies to businesses whose main input is land, cf the Portman Estate, Grosvenor Estates.)
Who’s James Robertson?
James, see 11th Feb blog Monetary Reform and the G20.
I suppose its a logical place for a Marxist to go. If you can’t raise the river then lower the bridge! Of course it won’t work. You call it offshore, but in the real world it is simple different places to do business, and the more regulation the UK imposes the more business will locate itself elsewhere. Yoy may have spotted it with IT, motors, and financial services, but in reality there is little business that is not able to tell UK plc where to stick it.