Top executive pay – too high, too easy

January 15, 2017 12:29 PM

Liberal Democrats have long argued for fairness in pay between those at the top and those at the bottom in both the public and private sectors. It can be done - and is done in some sectors.
In the 1920's, an Admiral received about 10 times as much pay as an able seaman. In 2017, a seaman after trial period gets £18,300 a year, a full admiral (of which there are only 3) gets £183,000. A Type 45 warship costs over a billion pounds, and is captained on voyages around the world by someone earning less than £100,000. There is no sign that there is any shortage of superb leaders in the Royal Navy because of the pay scales.
Perhaps fairness demands that no public servant or person working for any taxpayer-funded organisation or charity should earn more than the Lord Chief Justice of England, currently £245,000 a year - and that a justification should be published for anyone approaching that level.
Businesses need to take note of fairness too - and fast. Any salary above £245,000 should be justified in public companies' annual report and accounts, and each be subject to an individual binding vote of approval by shareholders.
Despite the vitriol piled on the head of bankers, top management bonuses now paid are subject to long-term claw-back if the assumptions on which they are based changes.
The tide may be turning on excessive, unwarranted, senior executive pay in public companies.
We've urged that shareholders in such businesses should push for similar conditions on big bonuses which the long-term shows weren't based on rewardable performance.
A mega-investor BlackRock, who are said to be in the top three biggest shareholder in every FTSE100 company, is now reported as having written to the chairmen of more than 300 of the largest companies calling for restraint. This first step would mean less money being stashed away in top people's pension funds, and salary rises in line with employees' wages.
And although existing contracts can't be changed, it wants to see bonuses linked to performance on things that are under the direct control of senior management. Share prices soaring on speculation shouldn't mean windfalls for executives.
BlackRock has some leverage in getting its views across. It could vote against the re-election of non-executive directors for instance - hitting the non-compliant in the pocket.
And around half the top companies will put their pay plans to binding shareholder votes.
Hooray. This may be the start of sense at the top. And not before time.
Back in 2012 the Liberal Democrats said "With millions of people experiencing pay freezes and uncertainty about their jobs, the right thing to do is to shine a light on the murky world of executive pay and boardroom behaviour."
This is now happening. But there's still plenty of unwinding to be done as contracts come up for renewal.
Until rises have stopped, and then are seen to be going into reverse, the widespread sense of unfairness will persist.

This is a compilation and edit of several letters written to and publish by The Journal, by Robin Ashby