Executive Pay

[Rogin the Armchair fan]

Musing on Sunderland FC paying a 31-year-old with four year's experience in the industry £600,000 a year to run their operation, I read that the average - average - pay of CEOs of FTSE-100 companies is now over £4m a year. That's just ridiculous, isn't it? It's grown fourfold in the last five years. And it doubled in the ten years before that. What are they possibly doing now that they weren't, fifteen years ago, to justify an 800% increase in salary? And how can any individual possibly claim to add £4m of value to the company, instead of someone they could employ, for, I don't know, £1m a year? or £500k? Permanent Secretaries running Government Departments with billion-pound budgets and 100,000 staff struggle by on around £200k, so I just don't get why running Boots commands a salary twenty times as high. At the end of the day, that money is coming straight out of profit, which means we all as customers are paying it. Yet you never hear "customers" complaining about obscene salary packages in the private sector, in the way the Daily Mail gets its knickers in a twist about "taxpayers' money" being wasted on "Whitehall mandarins".

It seems a baffling state of affairs to me. Is it a bubble that's suddenly going to pop, when everyone wakes up to the emperor's new clothes-ness of it all?

[GCostanza]

Executive Pay

Not remotely baffling.

Has been going on for decades and as long as you have a capitalist system it always will.

[WOM]

Executive Pay

No, it's not baffling. When you let people essentially decide on their own pay, greed will win out. Who among us wouldn't like to write their own cheque?

Someone did a paper on this a few years ago that netted out around the idea that CEO pay should be no more than 20x that of the lowest paid full time employee. I agree.

I have no qualms with people being well paid based on a) responsibility and b) performance, but current exec pay is wildly out of line.

[caja-dglh]

Executive Pay

Rogin the Armchair Fan wrote: Permanent Secretaries running Government Departments with billion-pound budgets and 100,000 staff struggle by on around £200k, so I just don't get why running Boots commands a salary twenty times as high.

Because the person running Boots makes the observation that they need only 50,000 staff, makes the cuts, makes the company an extra four million a year and then takes a cut for being an effective manager?

[E10 Rifle]

Executive Pay

Because the balance of forces between capital and labour is so unbalanced. The former can help themselves while the latter is manacled.

[Evariste Euler Gauss]

Executive Pay

As Rogin points out it has been getting much worse over time, with an 800% increase over 15 years (which is colossal even if it's a nominal rather than real terms figure).

Reasons?

First, conforming to international (especially US) trends.

Second, given that the Remuneration Committees of listed companies, like the Boards of Directors of which they're subsets, tend to be packed with individuals who are senior execs of other listed companies, there's a bit of "scratch my back and I'll scratch yours" dynamic to this.

Third, the public are a bit inured to obscenely high pay due to the fact that top sports pay has been growing at a similarly explosive rate. And personally, whilst I think that being a CEO of a FTSE company should perhaps only be rewarded with 10 per cent of what it currently is, I think being an average Premiership footballer is something for which the remuneration would in a sane and half-just world be reduced by a factor of at least 20. That's something fans seem to be happy to suck up, paying for it through sports TV subscriptions, ticket prices and purchases of branded tat.

[Evariste Euler Gauss]

Executive Pay

Actually, the trickier analysis is why there isn't more shareholder activism against stratospheric exec pay, given that, Remuneration Committee, Schmemuneration Committee, the final power lies with the company in general meeting, i.e. its owners/shareholders. The big shareholders are the pension funds, insurance companies etc. I suppose the cynical view is that the inaction/tolerance of the pay rises is driven by class solidarity or timidity. I think it's reasonable to suppose that many of the individuals who make decisions at those institutional shareholder bodies are close to as sceptical as we are as to whether it's necessary to pay those salaries to get the right exec talent, in value for money terms.

[The Awesome Berbaslug!!!]

Executive Pay

Why should premiership footballers be paid less? They currently get 65% of the turnover of a wildly successful business. They're one of the few instances where labour can extract renumeration vaguely proportional to their level of input.

[E10 Rifle]

Executive Pay

Other than its economic unsustainability for the wider game, I'm relatively relaxed about footballers' pay. Unlike a huge proportion of the cunts in their pay bracket, they don't owe their riches to the remorseless sociopathic shafting of their fellow humans. They're also indisputably (mostly) the most talented people in the world in their chosen sphere of employment. Is that true of Richard Branson or Donald Trump? Or the Qatari ruling dynasty?

[WOM]

Executive Pay

If athletes' pay packets ever get you down, just remember that over 80% of them will be bankrupt within five years of retirement. The same won't be true of bank CEOs.

[Guy Profumo]

Executive Pay

The Awesome Berbaslug!!! wrote: Why should premiership footballers be paid less? They currently get 65% of the turnover of a wildly successful business. They're one of the few instances where labour can extract renumeration vaguely proportional to their level of input.

Dear sir.

Please tell me how I may subscribe to your manifesto.

[The Awesome Berbaslug!!!]

Executive Pay

E10 Rifle wrote: Other than its economic unsustainability for the wider game, I'm relatively relaxed about footballers' pay. Unlike a huge proportion of the cunts in their pay bracket, they don't owe their riches to the remorseless sociopathic shafting of their fellow humans. They're also indisputably (mostly) the most talented people in the world in their chosen sphere of employment. Is that true of Richard Branson or Donald Trump? Or the Qatari ruling dynasty?

I don't think it contributes to the economic unsustainability of the wider game at all. It certainly is a byproduct the of an wildly unfair system of allocation of wealth, and it leads to unfair, and suboptimal outcomes all over the place, but I'm not sure about economic unsustainability.

I think that is covered by how clubs are managed. Clubs going out of business is a function of losing control of spending, which can happen at any level, or any wage level. By and large, premier league clubs now have control of their wagebills, so the premier league players and their wages aren't directly linked to financial instability.

That's a matter that could be entirely dealt with by the football league creating a framework that capped wages as a proportion of club turnover. What you're left with then is the sustainable level of player wages.

I suppose Ultimately the issue is how much of the premier league TV deal they want to keep for themselves. Players wages are determined by this and not the other way round. And while increasing the flow of money from the premier league would improve the financial situation of all the tiers below it, issues of sustainablity are still more related to governance rather than income.

[Evariste Euler Gauss]

Executive Pay

Is that true of Richard Branson or Donald Trump? Or the Qatari ruling dynasty?

The point you make about it being objectively demonstrable that footballers are chosen/paid on merit (whereas that is less certain with the promotion and reward of senior corporate management) is a good one. In particular, there's a myth peddled in the airport shop business bestseller world that successful execs are demonstrating huge skill, whereas in fact, apart from the ruthlessness you mention, they are also employing huge amounts of arbitrary good luck, which is self-selecting in terms of fame and visibility.

But none of the three examples you cite above are remotely relevant. Branson made his money as an entrepreneur, not as an overpaid executive. Trump inherited his, as (I assume) did the rulers of Qatar, presumably topped up in the latter case by abuse of power to steal their nation's revenues. Corporate execs become wealthy, but not on the same scale as the most successful entrepreneurs, or heirs of the super-rich.

[WOM]

Executive Pay

I think the 'ruthlessness' of business people is over-imagined or projected. Good managers are able to make difficult decisions dispassionately, which is pretty much what the job calls for.

[Wouter D]

Executive Pay

E10 Rifle wrote: [...] footballers [...] don't owe their riches to the remorseless sociopathic shafting of their fellow humans.

[E10 Rifle]

Executive Pay

But none of the three examples you cite above are remotely relevant. Branson made his money as an entrepreneur, not as an overpaid executive. Trump inherited his, as (I assume) did the rulers of Qatar, presumably topped up in the latter case by abuse of power to steal their nation's revenues. Corporate execs become wealthy, but not on the same scale as the most successful entrepreneurs, or heirs of the super-rich.

But once you've made it, in the corporate world, through whatever means, you don't half have licence to make mistakes (Branson's had plenty of failures). If you get to the top in football and fuck up regularly, you're back in the lower divisions soon enough, with the attendant hit in the wage packet. Normally.

[ursus arctos]

Executive Pay

Gauss is spot on here on the executive issue, though I seriously disagree with him about footballers and other entertainers.

Relevant report from UK headhunters.

Britain’s chief executives are wildly overpaid, and there would be no negative impact on the economy if their salaries were slashed, a groundbreaking study of the country’s top headhunters reveals.

[Vicarious Thrillseeker]

Executive Pay

caja-dglh wrote:

Permanent Secretaries running Government Departments with billion-pound budgets and 100,000 staff struggle by on around £200k, so I just don't get why running Boots commands a salary twenty times as high.

Because the person running Boots makes the observation that they need only 50,000 staff, makes the cuts, makes the company an extra four million a year and then takes a cut for being an effective manager?

That is exactly what government department heads have been tasked with - annual cuts (10% a year for the next four years for my department) while increasing productivity.

[Guy Profumo]

Executive Pay

Smallcaps wrote:

[...] footballers [...] don't owe their riches to the remorseless sociopathic shafting of their fellow humans.

Nobody putting up pictures of FC franchise yet?