Last week’s report by the High Pay Commission focuses on the differential between senior boardroom pay and that for the average employee. To my mind its analysis is somewhat simplistic and its suggested solutions of greater transparency and a more ‘democratic’ approach to setting senior pay certainly are. In this post I’m going to look at some of the influences that have got us where we are and some factors come into play in trying to change things.
One early influence was the development Hay-style approaches to job evaluation backed up by cross-company pay comparisons. This is not necessarily to single out Hay (other systems are available) but, of necessity, good job evaluation involves reducing jobs to their generic factors. Especially when turned into points scores, the temptation is then to believe that all jobs of, say, 1000 points must have the same pay market value.
The report focuses on those at the top of the biggest companies. But in reality if it’s conclusions were implemented there would be great pressure to apply them more widely; especially in organisations operating in the public arena.
Another change over the years is an explosion in the number of senior jobs. Many aspects of working life which, once upon a time, either did not exist or were carried out within the public sector are now handled by stand-alone organisations each with their own Chief Executive and directors. This is true of both central and local government. In most of these the technicalities of the delivered service are relatively straightforward and the key executive skills required are generic ones of planning, organisation, negotiation and leadership rather than sector knowledge. The result is a much wider range of opportunities, than once was the case, for anyone wanting to build a successful executive career. This wider job market naturally produces upward pressures on executive pay.
Going back to FTSE 100 sized organisations. It is the case that most of them really do operate on a global basis and there is relatively little difficulty, or inconvenience, in Taking the headquarters elsewhere. Too intrusive a set of requirements around setting executive pay could easily backfire.
Another factor that has pushed up executive pay is that it is now so much easier for the Chief Executive who feels they are not getting enough money to find backing to start their own company or to lead a management buyout. Consequently, pay levels for CEOs tend to mirror the financial benefits of ownership
I am not attempting to cover all elements of this topic nor to produce my own solution; merely to highlight some of the relevant factors. But be careful what you wish for. What if the new transparent and more representative remuneration committee concludes that the CEO’s £4 million package is at the right level? Will the average worker feel more sanguine about the differential because there was an employee representative on the committee? Could just have the opposite effect.
