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Friday, 1 March 2013

Executive Pay

Published in the Times on 26 February 2013.  It was the lead letter for the day.

Dear Sir,

Jane O’Nions (letter, 25 February) gives but one example of executive pay being out of all proportion to any results achieved, a trend confirmed by a report in 2011 by the High Pay Commission.

One of the chief problems is that English corporate law was largely developed in the nineteenth and early twentieth century, when companies had far smaller numbers of shareholders. Accordingly, the latter were able to provide a check on executive performance. When the largest individual shareholder of a company holds less than 1% of the shares, as is common with large multinationals today, it will be all but impossible for the shareholders to act as a group.

Successive governments have always been reluctant to act by imposing higher taxes, partly because economists dispute whether they would lead to increased revenues, and partly because executives can either find loopholes or threaten to move business offshore. Moreover, many politicians will have one eye on directorships for themselves – a consideration which also puts paid to other forms of restraining pay besides tax. This effectively leaves it to executives themselves to set the level of their own pay [and it is not hard to guess the result of placing the design of the chicken coop in the hands of the foxes].

A second blight has been the attempts of local government and other public sector bosses trying to pay themselves in line with the private sector, leading to the absurd situation of many council chiefs earning considerably more than the Prime Minister. This is something the Government should deal with[, perhaps by starting with a sealed bid procedure for senior public sector roles].

Words in square brackets omitted.

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