The Grit: Salary Caps for Fat Cats?

Executive greed is making society sick.

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The Grit: Salary Caps for Fat Cats?
In 2008 the top 0.1 percent of American earners helped themselves to more than 7.5 percent of the national income (Photo: Lee Jae Won/Reuters)

You may hyperventilate. You may find yourself emitting a curious, involuntary moaning sound. Whatever you do after reading this, don’t go looking at your paycheck. 

Just inhale. Exhale. And relax.

A couple of generations ago, the top executive at BP (the company which this year turned the Gulf of Mexico into an oil slick) was paid $223,730. That same position now pays nearly $7 million per annum. A 3000 percent increase in 30 years.

Calm, friend. Calm. It’s just the way of the world. 

In 2008 Bob Stack, the head of personnel at Cadbury’s chocolate, was given a total pay package of $5.9 million. Unlike the chief executive of BP, Bob Stack was not running a global oil company. Bob Stack ran the human resources department at a sweetie manufacturer, and Bob was being handed the sort of money in one year it would take the average nurse, policeman or teacher more than a lifetime to earn

Then he retired with a $12.5 million pension pot.

Bemused? Bewildered? Outraged? Of course not. Inhale. Exhale. Water off a duck’s back.

But just so you know how little they care, make sure you read the next sentence carefully.

In 2010, during a period of little or no economic growth for America and Britain, when severe austerity measures and welfare cuts were being imposed on the U.K. by an incoming government, top British companies awarded their directors average pay raises of 49 percent.

By comparison, the average pay raise for the rest of the U.K. workforce was 2.7 percent. Lower than the rate of inflation. Effectively a pay cut.

This summer there were riots in Britain. This fall America was Occupied. A sense of injustice rose up among people who struggle, on a daily basis, to make ends meet.

Inhale. Exhale. Stay calm. STAY CALM. There may finally be some progress.

A while back a left-leaning group called Compass brought together a bunch of academics, sociologists and business leaders to form the High Pay Commission. The commission spent the last 12 months looking at the corrosive effects of boardroom excesses, and found the whole rotten mess completely unjustifiable.

Chapter by chapter, the newly published report sacrifices every single sacred cow trotted out in defense of stratospheric corporate remuneration. High pay, it demonstrates, damages trust, distorts markets, and creates social instability.

High pay does not secure the best from a worldwide pool of talent; most “talent” stays in its own country. High pay demotivates staff and increases absenteeism. High pay makes no difference to executive performance, kills entrepreneurialism and drains talent away from lower-paid but socially vital pursuits.

High pay makes no difference to executive performance, kills entrepreneurialism and drains talent away from lower-paid but socially vital pursuits.

In 2002 the top 0.1 percent of earners in Britain took home 4 percent of the national income. In 2008, it was more than 6 percent. In America, in 2008, the top 0.1percent of earners helped themselves to more  than 7.5 percent of the national income.

If things continue, the commission concludes, income disparity between the rich and poor, on both sides of the Atlantic, is going to slip back to the same levels we had in the 19th century. 

Extraordinarily, the report seems to have struck a chord. Instead of wagging a finger at America and burbling something about markets, the British government has acknowledged for the first time that the system is out of control. 

This week the Deputy Prime Minister announced the government is considering everything from forcing companies to put low-paid employees on executive remuneration committees to tying the pay of directors to a multiple of their organization's median salary.

It’s hardly the boardroom revolution the Occupy movement is calling for, but it is a start.

Could this idea cross the Atlantic? Would any of this wash in the Land of the Free to Earn as Much as We Damn Well Please? 

In Britain, pushing home wheelbarrows full of cash for doing anything is widely considered to be immoral. There’s no such restraint in America. But if the social and economic argument, as propounded by High Pay Commission, begins to catch on, then things could get interesting.

If enlightened U.S. executives can accept there is a business case for pay restraint, it could, at least, put the subject on the boardroom agenda.

But don’t hold your breath.